Payroll & Tax

How PAYE Works

PAYE (Pay As You Earn) is South African income tax deducted from an employee's salary each month and paid to SARS on their behalf. MBS Attendance calculates this automatically for each payslip.

What is PAYE

Rather than paying a lump sum of income tax at the end of the year, South African employees pay their estimated tax a little each month. The employer deducts it from the payslip and pays it to SARS. At tax year end, employees file a return and either get a refund (if too much was deducted) or pay the difference (if too little was deducted).

How it is calculated

MBS Attendance uses the following steps for each payslip:

Estimate annual income by multiplying the monthly gross by 12.

Check the age threshold. Look up the employee's age from their date of birth. If the annual estimate is below the threshold for that age group, PAYE is zero.

Find the tax bracket by selecting the highest bracket whose minimum income does not exceed the annual estimate.

Calculate annual PAYE using the formula: lump_sum + ((annual_income - min_income) × rate ÷ 100)

Divide by 12 to get the monthly PAYE deduction.

Worked example

An employee earns R20,000 per month gross. Their estimated annual income is R240,000. For a person under 65, the tax-free threshold is R95,750 — so they do owe tax. The applicable bracket is:

R95,750 — R245,100: 18% of amount above R95,750 (lump sum = R0)

Annual PAYE = R0 + ((R240,000 - R95,750) × 18%)
           = R144,250 × 0.18
           = R25,965
Monthly PAYE = R25,965 ÷ 12 = R2,163.75

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Only the excess is taxed at the bracket rate

A common misconception is that crossing into a higher bracket means all your income is taxed at the higher rate. This is not how it works. Only the portion of income above the bracket floor is taxed at the bracket rate. The lump sum covers all tax owed on the income below that floor.

Age thresholds

The tax-free threshold increases with age. MBS Attendance reads the employee's date of birth from their record and applies the correct threshold automatically:

Under 65: R95,750 per year (2026/27)
Age 65–74: R141,250 per year (2026/27)
Age 75+: R157,900 per year (2026/27)

Make sure each employee's date of birth is entered on their employee record for correct PAYE calculation.

Employer covers PAYE

Some companies pay PAYE on behalf of their employees as a staff benefit. If this is the case, go to Settings → Payroll & Tax and set PAYE deductions to Employer covers PAYE. PAYE will not be deducted from employee pay and will not appear on payslips. The system still calculates the PAYE amount internally for reporting purposes.