Employers are required to register for and pay Pay As You Earn (PAYE) and Unemployment Insurance Fund (UIF) contributions for any employees to whom remuneration is paid or owed unless the employee is exempted from one or both of these. 

Some employers are also required to pay Skills Development Levy (SDL) contributions for their employees. 

An employer’s PAYE liability may be reduced if they have employees who qualify for the Employment Tax Incentive (ETI). We will learn more about ETI in the next section.

Employees’ Tax (PAYE)

As a general rule, where an employer pays or is liable to pay, remuneration to an employee, the employer has an obligation to deduct the employee's tax (PAYE – Pay as You Earn) and must register for PAYE with SARS. PAYE must be deducted from the employee’s income and paid over to SARS monthly. The procedural aspects are discussed in the following section

Calculating PAYE

There are two standard methods for calculating employees’ tax – periodic and averaging/annual equivalent – both of which are acceptable to SARS. 

These methods will be discussed with reference to monthly-paid employees but the principles are the same for employees who are paid weekly etc. The term “income” will be used in this article to refer to the employee’s taxable income (remuneration for PAYE purposes).

• The periodic tax basis calculates tax on each payslip in isolation using the monthly tax tables. 
• Tax averaging takes into account an employee’s total income for the entire tax year to date (YTD) and uses an annual equivalent to calculate tax. 

Where an employee is in non-standard employment or has received a tax directive from SARS, the tax will not be calculated as mentioned above.