Tax and SARS knowledge base
PAYE where an employee earns salary and commission
How is PAYE calculated when an employee receives commission and a salary?
Last reviewed:
Direct answer
Salary and commission paid to an employee are remuneration for PAYE purposes. SARS's employer guide says that, if the employee does not have a tax directive, the employer must combine salary and commission and deduct employees' tax using the applicable tax-deduction tables. Where commission is earned over more than one month but paid later, SARS sets out a method that spreads the commission for the payroll calculation.
The employer should not use a single guessed percentage for every commission payment. The correct calculation depends on when the commission was earned, the payment period, the employee's other remuneration and any valid SARS directive.
What this means in practice
Commission plans often produce a payroll spike. A salesperson may be paid a monthly basic salary and receive commission quarterly, after a customer has paid, or when a target is met. If the payroll system treats the full commission as an unrelated once-off payment, withholding can be wrong.
SARS provides a commission example for a person paid salary and quarterly commission. The guide allocates the commission over the months in which it was earned, compares tax on salary alone with tax on salary plus the monthly commission portion, and then calculates the amount to deduct when the commission is paid. Payroll software should be configured for the current SARS method, not an internal shortcut.
The employee may still receive a final assessment after filing an ITR12. PAYE is a withholding mechanism, and the final result depends on all taxable income, deductions and credits for the year.
Step-by-step
- Read the commission plan.
Establish the trigger for the commission, the period it relates to and whether it can be reversed. Keep the approved calculation and sales evidence. A payment date alone does not always identify the earning period.
- Identify all remuneration for the payroll period.
Include the employee's salary and the commission amount, then consider benefits, allowances and any directive. Do not omit an amount merely because it is variable pay.
- Check for a valid directive.
If the employee has a SARS directive, confirm its wording and period with the payroll adviser. The employer guide includes special direction where commission is a substantial part of remuneration, so do not apply a directive mechanically.
- Apply the current SARS calculation method.
Use the current payroll tables and the SARS commission method where the commission covers several months. Preserve the calculation inputs and output. A spreadsheet should have review controls where it supplements payroll software.
- Pay and report the amount accurately.
Show the payment and PAYE on the payslip. Use the applicable income and PAYE codes on the IRP5 or IT3(a), and make sure the EMP201 and EMP501 reconcile to the payroll ledger.
- Explain the result carefully.
Tell the employee what was paid and withheld. Do not tell them that the deducted amount is their final tax or that a refund is guaranteed.
Documents and records to keep
Keep the contract, commission policy, signed target schedule, calculation evidence, manager approval, payroll run, payslip, directive if any, EMP201 support and certificate data. If commission is recovered later, preserve the recovery agreement and the original payment details. The records should make it possible to explain both the commercial payment and its payroll treatment.
Important limits and exceptions
Commission-only employees, employees with salary and commission, directors and personal service providers can have different rules. A settlement, a disputed clawback or a commission paid after termination also needs a careful analysis. Never assume a payment called "commission" is necessarily processed like an ordinary monthly bonus.
The SARS guide and tables change by tax year. Use the guide and payroll release for the period in which payment is made.
When to get tailored advice
Get advice where commission is paid annually or across several years, the employee has a directive, a large back-payment is due, commission is being reversed, or the business is changing its commission plan. Review a material payment before it is processed.
TaxProof can help prepare commission and payroll evidence. We cannot determine an employee's final assessment or replace a directive.