PAYE is the system under which an employer withholds income tax from an employee's remuneration each pay period and remits it to SARS, instead of the employee paying their full annual income tax liability in one amount.
What it means
Without PAYE, every taxpayer would owe a large lump sum at the end of the tax year. Spreading the liability across each pay period, calculated against SARS's published tax tables and the employee's tax rebates, keeps both cash flow and compliance manageable for employees and the revenue authority alike.
Where it fits in
PAYE is calculated on taxable income - gross remuneration less allowable deductions such as retirement fund contributions - using the annual tax tables SARS publishes for that tax year, annualised and then divided back down to the pay period. It is declared monthly via the EMP201 and reconciled annually via the EMP501, with the IRP5 reflecting the total withheld for the year.
Key rules
- Calculated per pay period using SARS's annual tax tables and the employee's age-based rebate.
- Irregular payments (bonuses, lump sums) are usually annualised to avoid under- or over-taxing them.
- A tax directive overrides the standard calculation for specific lump sum payments.
- Under-deduction is the employer's liability, not just the employee's - SARS can recover it from the employer.
