Pay As You Earn (PAYE) is the system SARS uses to collect income tax from employees. As an employer, you're legally required to deduct the correct amount from every employee's salary and pay it over to SARS each month. Getting it wrong means penalties — getting it right means peace of mind for you and your staff.
This guide walks you through exactly how PAYE is calculated for the 2025/2026 tax year (1 March 2025 — 28 February 2026).
What Is PAYE?
PAYE stands for Pay As You Earn. It's not a separate tax — it's the method of collecting income tax at source. Every time you pay an employee, you withhold PAYE and pay it to SARS on their behalf. Employees then receive credit for these payments when they file their annual tax return.
Step 1: Determine Taxable Income
Start with the employee's gross monthly salary, then subtract allowable deductions to arrive at taxable income:
- Pension/provident fund contributions — deductible up to 27.5% of the greater of remuneration or taxable income, capped at R350,000 per year
- Medical aid — not deducted from taxable income directly, but a tax credit is applied later
For most employees, taxable income = gross salary minus pension fund contribution.
Step 2: Annualise the Income
SARS tax tables are annual, so multiply the monthly taxable income by 12 to get the annual equivalent. For example, if an employee earns R25,000 per month after pension deductions, the annual taxable income is R300,000.
Step 3: Apply the Tax Brackets
Use the 2025/2026 SARS tax brackets to calculate the annual tax. South Africa uses a progressive tax system — you pay a higher rate on each successive bracket, not on your entire income.
| Taxable Income (Annual) | Tax Rate |
|---|---|
| R1 — R245,100 | 18% |
| R245,101 — R383,100 | 26% |
| R383,101 — R530,200 | 31% |
| R530,201 — R695,800 | 36% |
| R695,801 — R887,000 | 39% |
| R887,001 — R1,878,600 | 41% |
| R1,878,601 and above | 45% |
Example: R300,000 Annual Taxable Income
Tax on the first R245,100 at 18% = R44,118
Tax on the remaining R54,900 (R300,000 − R245,100) at 26% = R14,274
Total annual tax before rebates = R58,392
Step 4: Subtract Rebates
SARS provides tax rebates based on age:
- Primary rebate (all taxpayers): R17,820
- Secondary rebate (65 and older): R9,765
- Tertiary rebate (75 and older): R3,249
For our example (employee under 65): R58,392 − R17,820 = R40,572 annual tax.
Step 5: Apply Medical Tax Credits
If the employee belongs to a medical aid, subtract the monthly medical tax credits:
- Main member: R376 per month
- First dependant: R376 per month
- Each additional dependant: R254 per month
For a member with one dependant: R364 + R364 = R728/month = R8,736/year. Final annual tax = R41,797 − R8,736 = R33,061.
Step 6: Divide by 12 for Monthly PAYE
Monthly PAYE = R33,061 ÷ 12 = R2,755.08. This is the amount you deduct from the employee's salary each month and pay to SARS.
Tip: Our free PAYE calculator does all of this automatically. Enter a salary and get instant monthly and annual PAYE breakdowns — no spreadsheet required.
When to Pay PAYE to SARS
PAYE must be paid to SARS by the 7th of the following month. For example, PAYE deducted from January salaries must be paid by 7 February. You submit the payment via SARS eFiling using an EMP201 return.
Common Mistakes to Avoid
- Applying the rate to total income — remember, each bracket only applies to the income within that bracket.
- Forgetting rebates — the primary rebate alone reduces tax by R17,820/year.
- Not annualising — applying monthly income directly to annual tables gives the wrong result.
- Ignoring pension deductions — contributions reduce taxable income and therefore PAYE.
Automate Your Payroll
Manually calculating PAYE for every employee each month is time-consuming and error-prone. With SmartSheets's free payslip generator, PAYE, UIF, and SDL are calculated automatically. Generate compliant payslips in minutes and focus on running your business.