PAYE vs Income Tax

You might have noticed that we’ve renamed ‘Tax’ on the system and on payslips to ‘Tax (PAYE)’. Tax is often used as a general term for the tax attached to a particular transaction. The term’s meaning therefore differs according to the context in which it is used, such as ‘sin’ tax in the tobacco industry or sugar tax in the soft drinks industry. In the context of payroll, tax refers to PAYE (Pay As You Earn). We’ve made the change to the label as a reminder that PAYE is distinctly different from income tax for individuals, even though they are related.

Income tax for individuals refers to the tax on your world-wide earnings, which can be divided into:

  • Tax on employment earnings, such as your salary, fringe benefits and allowances; and
  • Tax on non-employment earnings, such a rent income. 

PAYE is a method of collecting income tax that applies to your employment earnings. Amounts subject to PAYE are taxed at the time of payment on the payslip. Some employment earnings are not subject to PAYE and the income tax on these is only payable on assessment* e.g. subsistence allowances where the amount is above the prescribed rate. 

Non-employment earnings are collected via provisional tax payments** and on assessment*.

*Tax on assessment refers to the tax due after an individual submits their income tax return (ITR12) annually to SARS (usually via SARS eFiling). The tax due on assessment is the difference between the income tax calculated for the individual for the year and the amounts that they’ve paid throughout the year via PAYE and provisional tax**.

**Provisional tax refers to payments made directly to SARS after registering and filing for provisional tax on eFiling. You can read more about provisional tax on this SARS webpage.

All of the above can be shown illustrated as follows:

Please note that SimplePay only assists with the calculation of PAYE and not any of the other income tax collection methods. However, to reduce the amount payable on assessment, employees can opt to pay additional income tax via PAYE. This is done via the Voluntary Tax Over-deduction system item – this is only allowed if there is an agreement between the employee and the employer. More information on Voluntary Tax Over-deductions is available on our help page here.


Not a SimplePay user but want a system that easily calculates your employee’s PAYE and helps you prepare their payslip? SimplePay takes the hassle out of payroll. We offer a 30 day free trial that allows you to explore the system and see just how easy and stress-free payroll can be. To find out more or to sign up for a trial, click here.

Team SimplePay