Pay As You Earn (PAYE)

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)

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%.

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

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.

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.

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.