PAYE (PAY AS YOU EARN)
What is PAYE (Pay As You Earn)?
PAYE is a method of collecting income tax on an employee’s earnings.
Employers deduct PAYE when the payments are made.
It is called ‘Pay As You Earn’ because it can be weekly, fortnightly, and monthly payments.
PAYE Rates
The rates used to charge income tax with effect from 1st April 2022 are as follows:
Rates of income tax other than remuneration (Business)
- The first K100,000 per month is taxed at 0%
- The excess of K100,000 is taxed at 30%.
Rates of income tax on remuneration (Employment)
- The first K100,000 per month is taxed at 0%
- The next K230,000 per month is taxed at 25%
- The next K2,670,000 per month is taxed at 30%
- The next K3,000,000 per month is taxed at 35%
- The excess of K6,000,000 per month is taxed at 40%
How to calculate PAYE?
If your employee receives a gross salary of K300,000 per month.
Calculate his/her tax as follows:
| Taxable Income | Rate | Total |
| First K100,000 | 0% | K0.00 |
| Balance K200,000 | 25% | K50,000 |
Total tax payable is K0.00+K50,000.00=K50,000.00
- Gross Salary – K300,000
- Tax Payable – K50,000
- Net Salary – K250,000
According to MRA, ‘Remuneration’ means taxable income, whether in cash or otherwise, paid or payable to an employee as salary, leave pay, an allowance, wages, overtime pay, a bonus, a gratuity, commission, a fee, an emolument, pension, superannuation, a retiring allowance or stipends.
Who is required to register for PAYE?
As an employer, if you will be paying your employees more than K100,000 per month or K1,200,000 per year, you will be required to deduct PAYE and remit it to MRA.
Penalties
If you fail to remit or register employees who are subject to PAYE, you are required to pay all taxes due from the time you would have registered your employee, plus a penalty of 20% of the unpaid tax for the first month and 5% per month or part thereof for any further period of the unpaid tax.
