Pay As You Earn (PAYE) is employees tax that all income earners are by law supposed to pay. The South African Revenue Service (SARS) has a threshold income for PAYE which is reviewed every tax year.

According to law, an employer must register with the SARS within 21 business days after becoming an employer, unless none of the employees is liable for the normal tax. An employer who has registered for PAYE should also register for Skills Development Levy (SDL) unless they are exempt from registering for SDL (visit the SARS website for more information). An employer can also register for Unemployment Insurance Fund (UIF) (visit the SARS website for more information). Once the employer registers for PAYE he has to ensure that every month all tax due to SARS is deducted from the employees’ income and paid over to SARS before the deadline. This employee tax is calculated in accordance with tax tables that are prepared and reviewed by SARS every tax year. Calculations can be done manually if the employer does not have a payroll system in place or they can be done using software that has building table and all the employer has to do is capture the salary information for an individual and the payroll system will automatically calculate the PAYE to be deducted from the individual’s income.

Once all the calculations have been done for all employees and the total amounts have been gathered, and EMP201 is generated from SARS efiling, completed and submitted to SARS. Payment will have to be made to SARS before the due date as well.

Six months into the tax year a reconciliation is done and submitted to SARS. At the end of the tax year an annual reconciliation (EMP501) will have to be done (more info on the SARS website).