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 and subtract the deductions that reduce taxable income. In practice that usually means one thing: retirement fund contributions, which are deductible up to 27.5% of the greater of remuneration or taxable income, capped at R350,000 a year.
Medical aid is the common trip-up here. It does not come off taxable income — it is handled later as a tax credit against the calculated amount. Deduct it at this stage and you will understate the tax twice over.
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
The classic error is treating the bracket rate as if it applied to the whole salary. It does not — each rate only touches the income falling inside that band, which is why someone who crosses into the 31% bracket does not suddenly pay 31% on everything they earn.
The other three all inflate the tax. Forgetting the rebates overstates it by at least R17,820 a year, since the primary rebate applies to everyone. Applying monthly income to the annual tables without annualising first produces a figure that is simply wrong rather than merely close. And leaving pension contributions in taxable income taxes money that was never taxable.
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