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Pay As You Earn (PAYE)

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GRADomestic TaxTax TypesPay As You Earn (PAYE)

Pay As You Earn

It is a tax deducted from an employee’s income and is paid by an employer on behalf of the employee. The tax is charged on all income of an individual in employment, whether it is received in cash or in kind. Monthly PAYE returns must be filed by the employer on behalf of the employee on or before the fifteenth day of the month following the month in which the deduction was made. 

How PAYE Works

The monthly PAYE is deducted at source by your employer using the monthly graduated individual tax rates. 

Deductions and Allowances

These items are deducted from an employee’s income before calculating PAYE:

  • Social Security and National Insurance Trust (SSNIT) – 5.5% of basic salary.
  • Mortgage Interest paid on only one residential premise of the employee’s lifetime.
  • Provident fund up to 16.5% of your basic salary either paid by the employer or employee or both.
  • Contributions and donations to a worthwhile cause.

These are some of the allowances that will be added to salary for PAYE purposes:

  • Transport allowance
  • Rent (Accommodation) allowance.
  • Risk allowance
  • Night duty allowance
  • Responsibility allowance
  • Child Education allowance
  • House help allowance
  • Cook allowance
  • Garden boy allowance, etc.

Allowances paid in cash are added to the salary. Benefits to the employees in kind are added for tax purposes, but when the benefit is paid in kind, it is quantified in monetary value before it is added.  Examples are electricity, water, vehicle with driver and fuel, vehicle and fuel, vehicle only, fuel only, etc.

Accommodation and loan benefits are also benefits in kind which are quantified in the law. (See link: The Fourth Schedule of Act 896,2015 for the tax rates applicable)(See link: The Fourth Schedule of Act 896,2015 for the tax rates applicable)

Overtime

The overtime rate is applicable to employees who are;

  1. Junior staff and
  2. Their qualifying employment income including profits and gains to be taxed in the year is not more than Gh¢18,000.

A junior staff whose qualifying employment emolument is more than Gh¢18,000 is not entitled to overtime pay.

When an employer pays overtime to any employee that is not more than 50% of the employee’s monthly basic salary, the employer will deduct 5% as overtime tax. However, if the overtime paid is more than 50% of the employee’s monthly basic salary, the excess of the 50% is taxed at 10%. Unlike bonus no overtime is added to basic salary. It should be noted that for a non- resident employee tax on bonus or overtime is 20%.

PAYE for Temporary Workers

When a resident individual is a temporary worker, his or her tax is calculated as any other employee.

 “temporary worker” means a worker who is employed for a continuous period of not less than one month and is not a permanent worker or employed for a work that is seasonal in character. (Refer to Labour Act, 2003 (Act 651))

PAYE for Casual Workers

When a person makes payment to a casual worker, there should be a deduction of 5% tax on the amount which should be paid to Ghana Revenue Authority.

“casual worker” means a worker engaged on a work which is seasonal or intermittent and not for a continuous period of more than six months and whose remuneration is calculated on a daily basis. (Refer to Labour Act, 2003 (Act 651))

Income from Other Sources

Income from other sources such as income from other employment, business and investments should also be taxed. At the end of the year income from each source is put together in the return and filed as one and taxed.

Bonus

Total bonus payments made by employers to their employees in a year of assessment are taxed at 5% up to 15% of the annual basic salary of the employee.

Where the bonus payment exceeds 15%, the excess will be added to the employment income of the employee and taxed at the graduated tax rate.

The table below details the new monthly income tax bands and rates generally applicable to the chargeable income of resident individuals:

Year 2022

Chargeable Income GH¢

Rate %

Tax Payable GH¢

Cumulative Income GH¢

Cumulative Tax GH¢

 First

365

0

0

365

0

 Next

110

5

5.5

475

5.5

Next

130

10

13.00

605

18.5

Next

3,000.00

17.5

525

3,605.00

543.5

Next

16,395.00

25

4,098.75

20,000.00

4,642.25

Exceeding

20,000.00

30

 6,000

 

 

The chargeable income of non-resident individuals is generally taxed at a flat rate of 25%.

The table below indicates the new annual income tax bands and rates generally applicable to the chargeable income of resident individuals:

Year 2022

Chargeable Income GH¢

Rate %

Tax Payable GH¢

Cumulative Income GH¢

Cumulative Tax GH¢

 First

4,380

0

0

4380

0

 Next

1,320

5

66

5,700

66

Next

1,560

10

156

7,260

222

Next

36,000

17.5

6,300

43,260

6,522

Next

196,740

25

49,185

240,000

55,707

Exceeding

240,000

30

 72,000

 

 

These rates took effect from January 1st, 2022.

Relevant PAYE Downloads

Downloadable Forms and Online Tools for PAYE

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