What are PAYE and Bi-Annual IRP501 Recons?

You may have seen the word PAYE on your IRP5 pay slip or might of even heard it in passing from another staff member but have no idea of its meaning. Simply put, you are paying the tax you owe to SARS on a monthly basis instead of all at once at the end of the tax year, hence PAYE means ‘Pay As You Earn’. This is an ideal option as it saves the taxpayer from having to pay between 18% and 45% of their earnings (the taxable amount) to SARS in cash once a year as a lump sum!

PAYE is calculated monthly, then proceeds to be paid to SARS by your employer, this will occur regardless of if you get paid on a weekly or fortnightly basis. The employer should do your PAYE process by multiplying your earnings by 52 weeks, 26 weeks, or 12 months – all dependent on how you get paid. This will result in your annual amount being applied to the SARS tax board to further calculate your annual tax. Additionally, the result will be divided again by the same work period, in order to get the monthly PAYE tax which is then withheld, showcased on your IRP5 and paid over to SARS. Which all in all, gives the result of your PAYE contribution.

In situations where your employer pays for additional benefits, such as medical aid, pension fun and so forth, or even deducts these costs for you through using your income, your employer should then take the deductions or credits into account when calculating your PAYE and making the payment to SARS.

IRP501 Recon is a reconciliation done bi-annually in August and February reconciling the year’s annual salaries and the taxes paid to SARS. This is where it gets quite difficult, and if done incorrectly, could result in a PAYE audit.