LEARN · PERSONAL TAX
PAYE Calculation for Employers — The Fourth Schedule Formula
MEDIUM DISCLAIMERPAYE (Pay As You Earn) is the mechanism by which South African employers withhold income tax from employees' remuneration on behalf of SARS, under the Fourth Schedule to the Income Tax Act 58 of 1962. Every employer who pays remuneration above the tax threshold must register as an employer with SARS and withhold PAYE monthly. The calculation annualises the employee's gross remuneration, applies the 2026/27 income tax table, subtracts rebates (primary R17,820, secondary R9,765 for age 65+, tertiary R3,249 for age 75+) and medical tax credits (R376 per month per main member and first dependant, R254 for each additional dependant), then divides by 12. UIF (1% + 1%, capped at R17,712/month) and SDL (1% of total payroll above R500,000 per year) are calculated separately and all submitted via EMP201 by the 7th of the following month.
R17,820
Primary rebate
All employees — 2026/27
R99,000
Tax-free threshold (under 65)
Annual / R8,250/month
1%
UIF rate (each party)
Capped at R17,712/month
1%
SDL rate
Annual payroll above R500,000
7th
EMP201 due date
Of the following month
R376/month
Medical credit — main member
s6A ITA — 2026/27
THE EMPLOYER'S OBLIGATION
What PAYE is — and why employers carry the legal risk
Every month that a South African employer fails to withhold the correct PAYE from an employee's salary and remit it to SARS, the employer becomes personally liable for the shortfall— not the employee. This is the feature of the Fourth Schedule that most business owners discover too late. SARS can recover unpaid PAYE directly from the employer, with interest at 10.25% per annum and a 10% late-payment penalty on top. The employee's obligation to pay income tax is discharged when the employer withholds correctly — but the employer's obligation to SARS is absolute and cannot be contractually shifted to the employee.
PAYE is governed by the Fourth Schedule to the Income Tax Act 58 of 1962. The Fourth Schedule sets out who must register as an employer, what constitutes remuneration for withholding purposes, the formula for determining the withholding amount, the deadlines for payment, and the penalties for non-compliance. It operates on an annualisation principle — the monthly salary is multiplied by 12, the annual tax is calculated using the full-year tax table, and the result is divided back by 12. This ensures that a consistent monthly withholding amount is applied, regardless of whether the employee has other income sources or additional deductions that will only be resolved when they file their annual tax return.
The PAYE system interacts with three other employer obligations: UIF (Unemployment Insurance Fund contributions under the Unemployment Insurance Contributions Act 4 of 2002), SDL (Skills Development Levy under the Skills Development Levies Act 9 of 1999), and fringe benefit taxationunder the Seventh Schedule to the Income Tax Act. All three are collected alongside PAYE via the monthly EMP201 return. An employer who understands only PAYE but ignores fringe benefits — the company car, the employer-paid medical aid, the low-interest loan — is understating every employee's taxable remuneration and will face an EMP501 reconciliation shortfall every May.
The 2026/27 year of assessment runs from 1 March 2026 to 28 February 2027. The tax table, rebates, medical tax credits, and thresholds in this guide apply for the full period. They do not change during the year — they are fixed at Budget day (February 2026) and only change when the next Budget is tabled in February 2027. Employers must update their payroll systems at the start of each new tax year to apply the new figures. Failing to do so for even one month means twelve months of incorrect PAYE withholding that must be reconciled in the annual EMP501.
2026/27 TAX TABLE
Individual income tax · Budget 2026/27
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%
Above R1,878,600
45%
Source: SARS Budget 2026/27 Tax Pocket Guide
REBATES & THRESHOLDS
Primary rebate
R17,820
All taxpayers
Secondary rebate
R9,765
Age 65+
Tertiary rebate
R3,249
Age 75+
Threshold — under 65
R99,000
R8,250/month
Threshold — 65 to 74
R153,250
R12,771/month
Threshold — 75+
R171,300
R14,275/month
MEDICAL TAX CREDIT
s6A ITA · Per month
Main member
R376
First dependant
R376
Each additional dependant
R254
THE CALCULATION FORMULA
Nine steps — from gross salary to EMP201 payment
The Fourth Schedule prescribes the exact sequence. Every step must be applied in order. Skipping the retirement deduction or the medical credit are the two most common payroll errors in South African small businesses.
Determine gross monthly remuneration
Fourth Schedule — definition of remuneration
Gross monthly remuneration includes: basic salary, overtime (if fixed or regular), commission, bonuses apportioned monthly, fringe benefits valued under the Seventh Schedule (company car at 3.25% of determined value per month; employer medical aid contributions at actual cost; employer pension contributions at actual amount; low-interest loans at the difference between the official rate and the actual rate charged), and any travel or subsistence allowances in excess of deemed amounts. This total is the starting base for all subsequent calculations.
COMMON TRAP
Travel allowances: if the employer pays a fixed monthly travel allowance, 80% is included in taxable remuneration for PAYE purposes (unless the employee is expected to travel more than 80% of the time, in which case 20% is included). The common trap is including 100% or 0% — both are wrong in the general case.
Annualise gross remuneration
Fourth Schedule — annualisation method
Multiply the gross monthly remuneration by 12. PAYE is always calculated on an annual basis regardless of pay frequency. This produces the annual equivalent of the employee's current salary package. If the employee joins mid-year or receives a salary increase mid-year, the annualisation is still applied from the effective date — the employer recalculates PAYE for the remainder of the year based on the new annualised figure.
Calculate and apply the retirement fund deduction
Section 11F ITA — 27.5% of remuneration, capped R430,000
If the employee contributes to a registered pension, provident, or retirement annuity fund, calculate the annual deductible amount: the lower of (a) 27.5% of annual gross remuneration or (b) R430,000 per year. Employer contributions taxed as a fringe benefit also count toward the cap — if the employer contributes R120,000 to a pension fund, only R310,000 of personal contributions remain deductible before hitting R430,000. Subtract the allowable retirement deduction from the annualised gross remuneration to arrive at annual taxable remuneration.
COMMON TRAP
Employer pension contributions appear as a fringe benefit (increasing gross remuneration) and then as a component of the Section 11F deduction (reducing taxable remuneration). Payroll systems must handle both sides of this entry. Missing the employer contribution on either side produces incorrect PAYE.
Apply the 2026/27 income tax table
SARS Budget 2026/27 — individual tax brackets
Apply the seven-bracket tax table to the annual taxable remuneration. The brackets are: 18% on R1–R245,100; 26% on R245,101–R383,100 (R44,118 base); 31% on R383,101–R530,200 (R79,998 base); 36% on R530,201–R695,800 (R125,599 base); 39% on R695,801–R887,000 (R185,215 base); 41% on R887,001–R1,878,600 (R259,783 base); 45% above R1,878,600 (R666,339 base). The result is annual tax before rebates.
Subtract the applicable rebates
Section 6 ITA — primary R17,820 / secondary R9,765 / tertiary R3,249
Deduct the rebates from annual tax before rebates. Primary rebate R17,820 applies to every individual taxpayer. Secondary rebate R9,765 applies if the employee is 65 years or older. Tertiary rebate R3,249 applies if the employee is 75 years or older. Rebates are cumulative — a 76-year-old employee receives all three: R30,834 in total annual rebates. If the result after subtracting rebates is negative, annual tax is zero (the employee is below the tax threshold). The employer must hold a copy of the employee's ID to verify age-based rebates.
COMMON TRAP
Secondary and tertiary rebates are a right, not a request. An employer who fails to apply them — because the payroll system was not updated with the employee's date of birth — overwitholds PAYE. The employee is entitled to a refund via their annual ITR12, but the employer has caused unnecessary cashflow distress.
Subtract the medical scheme fees tax credit
Section 6A ITA — R376/R376/R254 per month per member
If the employee (or employer on behalf of the employee) contributes to a registered medical scheme, calculate the monthly tax credit: R376 for the main member, R376 for the first dependant, R254 for each additional dependant from the third person. Multiply by 12 for the annual credit. Deduct from annual tax after rebates. The result cannot be negative — the credit is non-refundable in the monthly PAYE context. An employee with a spouse and two children on medical aid has a monthly credit of R1,260 (R376 + R376 + R254 + R254) and an annual credit of R15,120 — which comes off the annual tax before dividing by 12.
COMMON TRAP
The medical credit is a credit against tax — not a deduction from income. It reduces the tax payable rand for rand. Payroll systems that treat it as an income deduction instead of a tax reduction will overwithold PAYE by approximately the employee's marginal rate multiplied by the credit amount.
Divide by 12 — monthly PAYE withholding
Fourth Schedule — monthly equivalent
Divide the annual tax after rebates and medical credits by 12. This is the exact rand amount to withhold from the employee's salary for the month. Round to the nearest cent. This amount is the PAYE component of the EMP201 return. It is withheld from the employee, not an additional cost to the employer.
Calculate UIF — employee and employer
Unemployment Insurance Contributions Act 4/2002 — 1% + 1%
UIF is 1% of gross monthly remuneration from the employee and 1% from the employer. Both contributions are capped at a monthly remuneration ceiling of R17,712 — meaning the maximum employee contribution is R177.12 per month and the maximum employer contribution is R177.12 per month, regardless of salary. An employee earning R80,000 per month pays the same R177.12 in UIF as one earning R20,000. The UIF deduction from the employee reduces their net take-home pay. The employer pays its own 1% separately — it is an additional cost above the gross salary.
COMMON TRAP
Directors of companies who receive remuneration are subject to UIF. The common error is treating all directors as excluded — they are only excluded if they receive no remuneration (i.e., draw dividends only). A working director on a salary is an employee for UIF purposes.
Calculate SDL and total EMP201 payment
Skills Development Levies Act 9/1999 — 1% above R500,000 annual payroll
If the employer's total annual payroll (all employees combined) exceeds R500,000, calculate SDL at 1% of total gross monthly remuneration for all employees. SDL is an employer-only cost — there is no employee deduction. The total EMP201 payment = PAYE withheld from all employees + employee UIF for all employees + employer UIF for all employees + SDL (if applicable). This total is due to SARS by the 7th of the following month via SARS eFiling.
COMMON TRAP
The R500,000 SDL threshold is annual payroll for all employees — not per employee. A business with five employees each earning R80,000 per year has an annual payroll of R400,000 and is exempt. The same business with a sixth employee tips to R480,000 — still exempt. At seven employees it hits R560,000 — now liable for SDL on the full payroll, not just the excess.
FRINGE BENEFITS
Seventh Schedule fringe benefits — what adds to taxable remuneration
Fringe benefits are non-cash benefits that the Seventh Schedule to the Income Tax Act requires to be valued and included in the employee's gross remuneration for PAYE purposes. Every employer who provides these benefits is legally required to add the deemed taxable value to remuneration before applying the PAYE formula.
Company vehicle
Valuation: 3.25% of the vehicle's determined value per month (3.5% if no maintenance plan). The determined value is the original cash cost including VAT.
Employee bears 80% of the fringe benefit unless they keep a logbook proving more than 80% business use — in which case the taxable portion is reduced proportionally.
Seventh Schedule paragraph 7Employer medical aid contributions
Valuation: Full actual amount contributed by the employer on behalf of the employee — included as taxable remuneration, then allowed as a deduction for the medical tax credit purposes.
The employer contribution increases the employee's taxable remuneration. The Section 6A medical credit then partially offsets the resulting tax.
Seventh Schedule paragraph 12AEmployer pension/provident fund contributions
Valuation: Full actual amount contributed by the employer — included as taxable remuneration (fringe benefit), then deductible under Section 11F as part of the employee's retirement contribution.
Both sides must be captured in the payroll system. Missing either side produces incorrect PAYE and an EMP501 variance.
Seventh Schedule paragraph 12DLow-interest or interest-free loan
Valuation: The difference between interest at the official rate (currently 10.25% p.a. — SARS repo + 100bps) and the interest actually charged by the employer.
A company that lends an employee R200,000 interest-free for a home deposit creates a monthly fringe benefit of approximately R1,708 per month (R200,000 × 10.25% ÷ 12). That R1,708 is added to taxable remuneration each month.
Seventh Schedule paragraph 11Residential accommodation
Valuation: The formula depends on whether the accommodation is owned or rented by the employer. For employer-owned: (A × B) / 100 where A is remuneration factor and B is a rental value percentage based on the property. For employer-rented: actual rental paid by the employer.
Accommodation provided in remote work locations may qualify for an exemption where the work location is more than 250km from the nearest urban area and accommodation is provided as a condition of employment.
Seventh Schedule paragraph 9Free or subsidised meals and refreshments
Valuation: The cost to the employer of the meals or refreshments provided, less any amount recovered from the employee.
Canteen meals, company lunches, and subsidised cafeteria arrangements are all potentially fringe benefits. The exemption applies only if the meal is provided at the employee's normal work location and is available to all employees on the same terms.
Seventh Schedule paragraph 10WORKED EXAMPLES
Three salary levels — complete PAYE calculation
Each example shows the full nine-step formula. Scenarios cover a junior employee below the SDL threshold, a mid-level professional with pension and medical aid, and a senior executive with a company car fringe benefit.
Junior employee — R15,000 gross monthly, no medical aid, no pension
Thabo is a 28-year-old junior administrator earning R15,000 per month. He has no medical aid, makes no retirement fund contributions, and the company is a small firm with four employees (annual payroll approximately R600,000 — SDL applies). Thabo's gross remuneration is straightforward cash with no fringe benefits.
At R15,000 gross, Thabo is well above the R8,250 monthly tax-free threshold, so PAYE applies. His effective tax rate on total remuneration is approximately 9.7% — significantly lower than his marginal rate of 26%, because the first R99,000 of annual income is tax-free after the primary rebate of R17,820.
Professional — R35,000 gross, pension fund 10%, medical aid with 3 members
Nompumelelo is a 41-year-old marketing manager earning R35,000 per month. She contributes 10% of her salary (R3,500 per month) to the company pension fund. Her employer contributes a matching 10% (R3,500) — which appears as a fringe benefit. She has three people on her medical aid: herself, her husband, and one child (three members). Monthly medical credit: R376 + R376 + R254 = R1,006 per month.
The retirement fund deduction substantially reduces Nompumelelo's PAYE despite increasing her gross remuneration (via the employer fringe benefit). Her effective take-home is considerably more than a simple rate-table estimate would suggest.
Senior executive — R85,000 basic plus company car, maximum RA contribution
Sipho is a 52-year-old finance director earning R85,000 per month. He has a company vehicle with a determined value of R750,000 (with maintenance plan: 3.25% fringe benefit). He maximises his retirement annuity at R35,833 per month (R430,000 ÷ 12 — the full annual cap). He has no medical aid through the employer (he has a private policy paid personally). He is below age 65 so only the primary rebate applies.
Sipho's R430,000 RA contribution is the single most impactful deduction available — it reduces his annual taxable income by R430,000, saving him approximately R176,300 in tax at the 41% marginal rate. At his income level, the monetary cap (not the percentage cap) is the binding constraint.
COMPLIANCE OBLIGATIONS
EMP201, EMP501, and IRP5 — the employer compliance cycle
Due: 7th of following month
The Employer Monthly Declaration declares total PAYE withheld, employee UIF, employer UIF, and SDL for all employees in the month. All four components are paid in a single payment. Late submission triggers a 10% penalty on total PAYE plus interest.
Fourth Schedule — paragraph 2Due: 31 May each year
The Annual Employer Reconciliation reconciles the 12 monthly EMP201 submissions with the IRP5/IT3(a) certificates issued to employees. Any variance between the EMP201 total and the IRP5 total must be explained and corrected. SARS uses the EMP501 to auto-assess employees — errors in the EMP501 cascade into employee tax returns.
Fourth Schedule — paragraph 14Due: 31 May — with EMP501
The IRP5 (employees subject to PAYE) or IT3(a) (employees not subject to PAYE) is the employee's annual tax certificate. It reflects total remuneration, fringe benefits, deductions, PAYE withheld, UIF, and medical contributions. Employees use it to complete their ITR12 return. Errors in IRP5 codes trigger disputes — particularly codes for fringe benefits (3801) and retirement contributions (4005).
Fourth Schedule — paragraph 13PAYE Non-Compliance Penalties
Fourth Schedule + Tax Administration Act 28/2011
| Late payment of PAYE | 10% of tax payable per month late | s213 TAA |
| Failure to withhold PAYE | Employer liable for shortfall + 10% penalty + interest at 10.25% p.a. | 4th Schedule para 5 |
| Late EMP201 submission | Fixed amount penalty (R250 – R16,000/month depending on turnover) | s213 TAA |
| Failure to issue IRP5 by 31 May | Administrative non-compliance penalty — R250/month per return | s210 TAA |
| EMP501 reconciliation shortfall | Additional assessment + interest on underpayment | 4th Schedule para 14 |
COMMON MISTAKES
Six PAYE errors South African employers make repeatedly
Ignoring fringe benefits entirely
Many small business employers calculate PAYE only on cash salary — ignoring the company car, employer medical aid contribution, employer pension fund contribution, and interest-free loans. Every one of these is taxable under the Seventh Schedule. The result is consistent under-withholding of PAYE, which SARS picks up in the EMP501 reconciliation and assesses as a shortfall — with interest running from the month of under-withholding, sometimes years earlier.
Seventh Schedule — ITA 58/1962Not updating payroll for the new tax year on 1 March
Tax tables, rebates, medical credits, and thresholds change on 1 March every year. An employer who continues to use the 2025/26 tables in March 2026 will overpay PAYE for every employee — because the new tables are typically more favourable as a result of fiscal drag adjustments. While this does not create a liability for the employer (the employee gets a refund at year-end), it creates unnecessary cash flow pressure for employees and a reconciliation headache in the EMP501.
Budget 2026/27 — effective 1 March 2026Counting all three employees as qualifying for the medical credit
The medical scheme fees tax credit applies only if the medical scheme is a registered medical scheme under the Medical Schemes Act 131 of 1998. Contributions to hospital cash plans, gap cover products, and international health insurance do not qualify. Employers who apply the credit for contributions to non-qualifying health products reduce PAYE withholding incorrectly. The credit also requires the correct number of dependants on the scheme — not the employee's total family members, but only those formally registered as scheme dependants.
s6A ITA — registered medical schemes onlyPaying SDL when exempt, or not paying when liable
SDL exemption applies when annual payroll is below R500,000. This threshold applies to total payroll for all employees combined — not per employee. Small employers who add employees may cross the R500,000 threshold mid-year without realising it, making them liable for SDL from the month they cross the threshold. Conversely, some small employers pay SDL on every payroll regardless of their payroll size — costing them 1% of total payroll unnecessarily every month.
Skills Development Levies Act 9/1999 — s4(b)Using gross salary instead of the correct remuneration base for the retirement deduction
The retirement deduction under Section 11F is capped at 27.5% of gross remuneration — including fringe benefits. An employer who calculates 27.5% against the basic salary only (ignoring the company car fringe benefit and employer pension contribution) understates the deductible amount and therefore overwitholds PAYE. The correct base is total gross remuneration including all fringe benefits — the same figure used in Step 1 of the PAYE calculation.
s11F ITA — remuneration for PAYE purposesTreating a lump-sum annual bonus incorrectly in the month paid
When a bonus or commission lump sum is paid in a specific month, it must not simply be added to that month's salary before calculating monthly PAYE. The correct Fourth Schedule method is to annualise the total expected remuneration for the year (regular salary × remaining months + lump sum) and recalculate PAYE for the full year, then subtract PAYE already withheld year-to-date. The result is the PAYE to withhold in the bonus month. Failing to do this — instead just taxing the bonus at the same rate as regular salary — consistently produces incorrect year-end EMP501 reconciliations.
Fourth Schedule — annualisation of variable remunerationFREQUENTLY ASKED QUESTIONS
PAYE — questions employers ask
How do you calculate PAYE in South Africa?
PAYE in South Africa is calculated under the Fourth Schedule to the Income Tax Act 58 of 1962. The formula is: (1) annualise the employee's gross monthly remuneration; (2) deduct any allowable retirement fund contributions (up to 27.5% of remuneration, capped at R430,000 per year); (3) apply the 2026/27 SARS individual tax table to produce annual tax before rebates; (4) subtract the primary rebate of R17,820 (plus secondary R9,765 if age 65+ and tertiary R3,249 if age 75+); (5) subtract the annual medical scheme fees tax credit (R376 per month for the main member and first dependant, R254 for each additional dependant); (6) divide by 12. Add UIF at 1% of gross (capped at R177.12/month) and pay everything via EMP201 by the 7th of the following month.
What is the PAYE tax-free threshold in South Africa for 2026/27?
The PAYE tax-free threshold for 2026/27 depends on age. For employees below age 65, the annual threshold is R99,000 — equivalent to R8,250 gross monthly salary. No PAYE is withheld below this amount. For employees aged 65 to 74, the threshold is R153,250 per year (R12,771 per month). For employees aged 75 and above, the threshold is R171,300 per year (R14,275 per month). These thresholds reflect the income level at which the applicable rebates exactly offset the tax liability from the tax table. Source: SARS Budget 2026/27 Tax Pocket Guide.
What are the PAYE rebates for 2026/27 in South Africa?
The PAYE rebates for 2026/27 are: Primary rebate R17,820 — all individual taxpayers. Secondary rebate R9,765 — persons aged 65 and older. Tertiary rebate R3,249 — persons aged 75 and older. Rebates are cumulative — a person aged 75 and above receives all three, totalling R30,834 per year. For PAYE, the employer deducts the applicable annual rebates from annual tax before rebates, then divides by 12 for the monthly withholding. Rebates reduce tax payable directly — they are not deductions from income.
How does UIF work for South African employers?
UIF contributions are 1% of gross monthly remuneration from the employee and 1% from the employer, capped at a monthly remuneration ceiling of R17,712 per month. Maximum contribution per party is R177.12 per month. Both are paid to SARS via EMP201 by the 7th of the following month. Directors who receive remuneration are subject to UIF. Domestic workers are included. The UIF ceiling means that employees earning above R17,712 per month pay the same fixed UIF amount regardless of salary.
What is SDL and which employers must pay it?
SDL is a 1% levy on total gross remuneration paid to all employees. It is paid only by the employer — there is no employee deduction. Employers with annual payroll below R500,000 are exempt. The R500,000 threshold is based on total payroll for all employees combined. Employers who exceed the threshold must register with SARS for SDL and pay 1% of total monthly remuneration via EMP201 each month. SDL funds are distributed to the relevant SETA based on the employer's SIC code.
How do fringe benefits affect PAYE in South Africa?
Fringe benefits under the Seventh Schedule are valued at a deemed taxable amount and added to gross remuneration for PAYE purposes. A company car is valued at 3.25% of the determined value per month. Employer medical aid contributions are included at actual cost. Employer pension fund contributions are included at actual cost then allowed as a deduction under Section 11F. Low-interest loans create a fringe benefit equal to the difference between the official interest rate and the actual rate charged. Fringe benefits increase taxable remuneration and therefore increase monthly PAYE withholding.
How does a retirement fund contribution reduce PAYE?
An employee's contribution to a registered pension, provident, or retirement annuity fund reduces taxable remuneration for PAYE under Section 11F. The deductible amount is the lower of 27.5% of gross annual remuneration or R430,000 per year. The employer deducts the allowable contribution from annualised gross remuneration before applying the tax table. An employee earning R50,000 per month who contributes R7,500 per month (15%) has PAYE calculated on R42,500 rather than R50,000 — reducing monthly withholding by approximately R2,775 at a 37% effective rate.
What is the medical scheme fees tax credit for PAYE purposes?
The medical scheme fees tax credit under Section 6A reduces monthly PAYE withholding for employees on a registered medical scheme. For 2026/27: R376 per month for the main member, R376 for the first dependant, R254 for each additional dependant. The credit is deducted directly from monthly PAYE — not from taxable income. An employee with four members on medical aid receives R1,260 per month in credit (R376 + R376 + R254 + R254), reducing their monthly PAYE by that amount. The credit applies only to registered medical schemes under the Medical Schemes Act.
When must employers submit EMP201 and pay PAYE to SARS?
EMP201 must be submitted and PAYE, UIF, and SDL must be paid by the 7th of the month following the month in which remuneration was paid. January salaries are due by 7 February. If the 7th falls on a weekend or public holiday, payment is due on the last business day before the 7th. Late payment attracts a 10% penalty on total PAYE plus interest at 10.25% per annum. An EMP501 annual reconciliation is due by 31 May each year. IRP5 certificates must be issued to employees by 31 May.
Does a director of a company pay PAYE in South Africa?
Yes. A director who receives remuneration — salary, director's fee, or any other employment income — is subject to PAYE withholding by the company. The calculation is identical to any other employee. A director who draws only dividends (not remuneration) is not subject to PAYE — dividends attract 20% dividends withholding tax instead. A director who draws both a salary and dividends has PAYE applied to the salary only. SARS scrutinises director remuneration structures where dividends are paid instead of salary specifically to avoid PAYE — anti-avoidance provisions apply.
RELATED TOOLS & GUIDES
Income Tax Calculator
Calculate annual income tax liability from taxable income — the same table the PAYE formula uses, applied to the full year. Useful for year-end tax planning and IRP6 provisional tax estimates.
Income Tax Act 58/1962 — s6
Open →RA Deductibility Calculator
Confirm the maximum retirement fund deduction for a specific income level — the same 27.5% / R430,000 cap that reduces PAYE in Step 3 of the formula.
Section 11F · Income Tax Act 58/1962
Open →RA Deductibility Guide
Deep-dive into how the R430,000 cap works, the employer contribution rules, and the carry-forward mechanism — critical context for PAYE Step 3.
Learn · Retirement Planning
Open →Wandile Lokwe
FAIS Key Individual · CenturionAI (Pty) Ltd · Centurion, Gauteng
20 years in South African financial services. Founder of CenturionAI (Pty) Ltd — the SA Professional Financial Services MCP Server, LeadRevive, FinPlan AI, and SmartDoc AI. All statutory figures on this platform are verified against SARS publications and Acts of Parliament before publication and reviewed after every Budget. The PAYE figures on this page are sourced directly from the SARS Budget 2026/27 Tax Pocket Guide and the Fourth Schedule to the Income Tax Act 58 of 1962.
wandile@centurionai.co.za · 081 344 8722
PAYE is calculated under the Fourth Schedule to the Income Tax Act 58 of 1962 and must be withheld and remitted to SARS by the employer every month. The formula on this page applies the 2026/27 tax table, rebates, and medical tax credits for the standard case — salaried employee with retirement fund contributions and medical aid. It does not account for commission earners, provisional taxpayers with assessed losses, multiple concurrent employers, variable remuneration structures requiring the alternative PAYE method under the Fourth Schedule, or non-standard fringe benefits. Employers must use SARS eFiling and the official PAYE tables for authoritative payroll processing. Worked examples on this page are illustrative — actual PAYE withholding for each employee must be calculated on their specific IRP5 remuneration structure. Consult a registered tax practitioner or payroll specialist for complex remuneration structures.