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Background

The PAYE method of calculating the amount of PAYE is the method that was used exclusively before the introduction of the FDS Tax Calculation methods.  Nowadays only employees recruited during the course of the year should have their PAYE calculated using this method of computing PAYE.  In most instances employees should be having their PAYE calculated using the recommended FDS - Forecast Method' .

 

To Set an employee on the PAYE tax calculation method

To set up an employee on the Traditional Method of calculating PAYE:

- New employees employed during the tax year will have the 'Tax Method' automatically set to 'PAYE' - the Traditional Method of computing PAYE.

- When a 'Year End' procedure is done the 'Tax Method' for these new employees will be changed to FDS Forecast method

 

To set a payroll to default to the PAYE method

To set up the default tax method to 'PAYE' - the Traditional Method of calculating PAYE:

- Go to the 'Setup', then 'Tax' menu options

- Select the 'Tax Method' tab

- Use the dropdown menu against 'Tax Method' to select 'PAYE'

- New employees will automatically have 'PAYE' selected as the 'Tax Method' to apply

 

Projection

The PAYE Method takes each period in isolation and assumes that the transactions, except for annual bonus, have been, and will be received for every period of the year.  This means that if, uncharacteristically, a significant amount of overtime is worked in the current period the income will be over-taxed having assumed that the overtime has and will be earned in every period of the tax year.

The calculation takes:

- Period income less tax deductible amounts x No. of periods in the year = (A)

- This is assumed to be the annual income  

- Apply the tax tables to (A) to obtain the tax payable = (B)

- Divide (B) by the number of periods in the year = PAYE amount for the current period.

 

PAYE Refunds

The PAYE Method thus tends to over-tax income which used to result in ZIMRA having to process PAYE refunds to most employees after submitting their tax return each year.