Insights
How PAYE is calculated on a payslip
PAYE is not a flat percentage of your salary. It is an annual tax calculated in advance and spread across pay periods, which is why one unusual month can look wrong when it is actually right.
The calculation, step by step
- Determine taxable income for the period, including taxable allowance portions and fringe benefits
- Subtract deductions allowed for tax, such as retirement fund contributions within limits
- Annualise the result to an estimated annual taxable income
- Apply the individual tax tables for the tax year
- Subtract rebates and medical scheme fees tax credits
- Convert the annual tax back to the pay period
Why a bonus month looks punitive
A bonus increases the period's income, which increases the annualised estimate and therefore the tax for that month. The calculation self-corrects over the year, but the bonus payslip always looks heavier than expected.
Check it yourself
Our PAYE calculator reproduces each of these steps for the current tax year, and PAYE explains the employer's obligations behind them.
Frequently asked questions
Why is my PAYE higher in some months?
Because PAYE is based on annualised income. A bonus, commission spike or back-pay raises the annualised estimate for that period and therefore the tax withheld.
Do medical tax credits reduce PAYE?
Yes. Medical scheme fees tax credits are applied against the tax calculated, reducing the PAYE withheld each period for members and their dependants.
Is PAYE the final tax?
Not always. It is an estimate withheld during the year; the final liability is determined on assessment when the individual files their income tax return.
Patuza configures and checks the calculation so payslips hold up to scrutiny.
Book a consultationRelated services
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PAYE, UIF, SDL, EMP201, EMP501 and IRP5 compliance managed end to end for SARS.
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Monthly and weekly payroll processing, calculations, payslips and statutory deductions.
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