Tax and SARS knowledge base
Is overtime pay taxed differently from my normal salary?
Is overtime pay taxed differently from my normal salary?
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Direct answer
No separate PAYE calculation applies simply because a payment is overtime. SARS says overtime is subject to employees' tax, must be added to salary for the specific period and is taxed using the applicable tax-deduction tables. It is reflected under code 3607 on an IRP5 or IT3(a).
The PAYE deducted in a period is not necessarily the same as the final annual tax result, so do not judge the overall tax position from one overtime payslip alone.
What this means in practice
Overtime is payment for services rendered outside ordinary hours under the relevant arrangement. For PAYE, SARS treats it as taxable remuneration. The payroll calculation should include the overtime with salary for the relevant pay period and use the applicable tax-deduction table.
This can make the PAYE deduction look higher in a period with overtime, because the salary and overtime are considered together for that payroll calculation. It does not mean SARS has created an additional special overtime tax rate.
The year-end certificate should help you check the reporting. SARS's certificate-code guide identifies source code 3607 for overtime subject to PAYE. A discrepancy between the payslips, timesheets and certificate should be raised with the employer or payroll team rather than corrected by changing the return entry yourself.
Step-by-step
- Keep the records for the overtime worked.
Retain overtime approvals, timesheets or other records that show the relevant payment. These records can help you check that the payslip is for the correct period.
- Review the payslip.
Check that the overtime amount is shown and that PAYE was deducted. Compare the overtime amount with the record of time worked and the employer's payroll explanation.
- Check the pay-period calculation.
SARS says overtime must be added to salary for the specific period and taxed using the applicable deduction tables. Ask payroll for clarification if the payslip appears to treat overtime as tax-free or if the amount cannot be reconciled.
- Review the IRP5 or IT3(a) after year end.
Look for overtime reported under code 3607. Compare the certificate with the overtime shown across your payslips.
- Ask the employer to correct source data if needed.
If the certificate does not match the payroll records, contact the employer. Keep the correction request and any revised certificate or response.
- Check the annual return separately.
When completing an ITR12, check all the employment certificate information for the year. Do not assume that the PAYE result on one overtime month determines the final assessment.
Documents and records to keep
- Overtime approvals, timesheets or equivalent work records.
- Payslips showing overtime and PAYE.
- IRP5 or IT3(a) certificate.
- Payroll explanation and correction correspondence.
- ITR12 and the assessment notice after filing.
Important limits and exceptions
This article explains the SARS PAYE treatment of overtime. It does not determine whether you were entitled to overtime pay under employment law, whether the number of hours was correct, or whether an employer's wage calculation meets a contract or collective agreement.
Do not say overtime is taxed at a special percentage. SARS's instruction is to add it to salary for the relevant period and use the applicable tax-deduction tables.
The final annual assessment can differ from payroll PAYE because it considers the taxpayer's annual return. This article does not calculate an individual refund or shortfall.
When to get tailored advice
Get tailored help if the employer cannot explain the payslip, overtime is missing from the certificate, there are multiple employers or other income sources, or SARS has queried the return. Employment-law advice may also be needed where the dispute is about entitlement to payment rather than its tax reporting.
TaxProof can help organise the timesheets, payslips and certificate information for a tax-record review. The employer controls payroll and certificate corrections, and SARS determines the final assessment.
Related TaxProof guides
- Employer IRP5 and EMP501 guide
- Is a performance bonus taxable in South Africa? (B02-IND-009)