The PAYE tax is a personal tax rate that employers use to calculate the amount of income tax that an employee has to pay. If you’re an employer who hires employees, deduct their salary and wages from their gross earnings before you can calculate their taxable income and apply PAYE. This is because there are various deductions that employees can make on their IR4S (form) when they submit it at the end of each year. To get started with this calculation, you need to know how much your employee earns per week and how many weeks they worked during the previous year.
How to calculate your PAYE weekly
To calculate your PAYE weekly, you need to divide the total taxable earnings by 52 weeks and multiply by your tax rate.
Your annual salary is likely to be quoted in terms of annual gross earnings or annual take-home pay (before deductions). To calculate your weekly net income, simply divide that figure by 52 weeks or 40 hours (the number of hours per week for full-time employees).
To find out how much tax you paid monthly, divide the total taxable earnings by 12 months and multiply by your personal tax rate.
What is PRSI?
Once you’ve added up all the tax rates, you can deduct your employee’s PRSI class, SCR of 4%, and USC rate for the relevant year.
PRSI is a social insurance tax (SIT) that funds Ireland’s public health system. It’s deducted from your employee’s gross pay, so it comes out before any other deductions such as PAYE or income tax are taken into account.
Here’s how it works:
- PRSI is calculated monthly, so if your employee worked 20 days in November 2018 and earned €1250, their SIT would be calculated:
- €1250 x 12 = €15000 + 4% = €15750 – 12 x 1% (employees pay 2%) – 3 x 7% (employees pay no SIPT
Why PAYE is a personal tax rate and not an actual value.
While PAYE is used to calculate your tax rate, it does not represent the actual value of the personal tax rate. Instead, PAYE is a percentage that you multiply by your taxable earnings to determine the government will tax how much of that income.
The amount of tax payable on your income depends on how much you earn and for how long you have received it. In South Africa and other countries where income tax is applied annually (i.e., there is no monthly withholding), this means employers must calculate their employee’s annual salary over 52 weeks (in SA) or 26 weeks (for most countries). The employer then multiplies these figures by 26 or 52 respectively, which gives them an estimate of what they should deduct from each pay slip as part of their contribution towards paying employees’ taxes.
Conclusion
The pay-as-you-earn (PAYE) system is a method of collecting income tax from employees in South Africa. This article outlines how PAYE works and how much you can expect to pay for your income tax.
