Understanding Payroll, PAYE, and Statutory Deductions in Tanzania

Tanzania is among Africa's fastest-growing economies. In 2022, the World Bank reported that the country's Gross Domestic Product (GDP) was $75.73 billion, the highest the country has ever had. Additionally, the GDP is expected to grow relatively stable, making the Tanzanian economy an ideal place for investment and starting a business.

The country has regulations to protect foreign investors from political exploitation. However, before entrepreneurs can venture into the country, knowing about Tanzania's payroll system, PAYE, and statutory deductions is essential.

Before starting any company or business, entrepreneurs need to establish a payroll system that complies with the country's laws. This article will break down the payroll laws in Tanzania and help start-up businesses adhere to the country's regulations.

Calculating Payroll in Tanzania

The country has stringent laws when it comes to payroll. The law requires all companies operating in Tanzania to have information related to employee data, minimum wages, working hours, employee benefits, and tax contributions.

When calculating the payroll, employers must include every employee's net salary, gross pay, additional compensations, and overall deductions. Here are some of the few deductions employers should consider while working on payrolls. 

1. Income tax

Tanzania has a progressive tax system, where tax percentage increases based on an employee's income level. The tax rate in the country is between 0% to 30%. Additionally, the minimum wage in the country is TZS 60,000 per year. 

The country does not expect employees who earn a minimum of TZS 270,000 per year to have PAYE deductions. Additionally, non-residents should only pay taxes if they earn income in the country. Non-residents must pay a flat tax rate of 15% on employment income. 

Residents in the country earning between TZS 270,000 and TZS 520,000 per year are expected to pay an 8% tax on earnings. Employees between TZS 520,000 and TZS 760,000 pay 20% tax on earnings.

Employees earning between TZS 760,000 and TZS 1,000,000 annually will pay an income tax of 25%. Lastly, employees earning more than TZS 1,000,000 annually will pay a 30% tax on earnings. 

2. National Social Security Fund contribution

The government expects entrepreneurs to contribute to an employee's National Social Security Fund (NSSF). Money contributed to social security should be the equivalent of 20% of the employee's basic income. 

Employers and employees can jointly contribute to the fund either by:

• The employer contributes 10% and the employee 10%. 
• The employer contributes 15% and the employee 5%.
• The employer contributes 20% and the employee 0%.  

3. Workers' compensation fund

Likewise, the country expects employers to contribute money to the worker's compensation fund. Companies are expected to pay 0.5% of the cash sum to employees. 

Salary Structures in Tanzania

Tanzania has specific rules and regulations employers should follow when working out salary structures in their businesses. Here are the main components of salary structures employers should use when calculating a payroll.

CTC

The cost to company (CTC) is a term that refers to the total cost of an employee to the business. The CTC shows the total amount an employer compensates an employee. It should include the salary, benefits and allowances, commissions, bonuses, and any other associated costs that an employee receives. 

Gross Salary

The gross salary is the total salary an employer compensates an employee before removing taxes and other deductions. 

Net Salary 

The net or take-home salary is the amount employees will receive after removing tax and other deductions. 

Basic Salary

The basic salary is the money an employee earns before any deductions and benefits. In Tanzania, the basic salary should be approximately 30-35% of an employee's gross pay. 

Allowances and Benefits

Employers should also stipulate the different allowances and benefits an employee receives throughout the year. An employee is liable to pay taxes depending on what kind of allowance and benefit an employer provides. 

Standard employee allowances include:

• Medical allowance
• Meal allowance
• Housing allowance
• Transport allowance
• Retirement benefits
• Entertainment allowance

Bonuses

Bonuses are also common components in a business's salary structure. Employers who provide annual bonuses should always include them in the CTC. 

How to Setup Payroll Processing in Tanzania

Entrepreneurs looking to start a business in Tanzania can follow these simple steps to help them set up a payroll system. 

1. Register your business with the relevant authority

An entrepreneur must first register their business with the Business Registration and Licensing Agency (BRELA), Tanzania Revenue Authority, and National Security Social Fund (NSSF). The company should receive a certificate of compliance after successful registration. 

2. Formulate a payroll structure.

Employers need to formulate a pay structure for their company. They can either design the structure internally or work with external compensation consultants. The structure should include evaluating jobs and establishing salary ranges. 

3. Register all employees to the payroll system.

Human resources must register all employees under the payroll system. Employers should also ensure all employees register with NSSF. 

4. Check employees' hourly rates and overtime schedules

Human resources should check the hourly and overtime schedules of the employees to calculate how much the business should compensate its workers.  

5. Calculate the gross pay, PAYE, and other deductions

Afterwards, employers should use employee data to calculate every employee's gross salary and deductions. 

6. Create payment cycle

Human resources then need to establish a payment cycle for the different types of employees within the organisation. Companies can pay daily, weekly, bi-weekly, or monthly, depending on their policies. 

7. Decide when to pay payroll taxes each month.

After creating a payment cycle, employers also need to decide which time of the month they should make payroll tax payments each month. 

8. Distribute payslips

Once an employer pays an employee, the company should provide them with a payslip detailing the gross pay, net pay, deductions, and allowances made to the salary. 

9. Keep payroll records

Business owners must keep all documents and information related to employee compensation. The documents act as proof of fair wage compensation. 

In Conclusion

Tanzania's growing economy is the perfect hub for businesses expanding into Africa. However, entrepreneurs should understand their obligation to employees and the country's payroll regulations. 

The country's payroll structure encompasses CTC, gross salary, net salary, basic salary, allowances, benefits, and bonuses.

Additionally, setting up a payroll system in Tanzania involves registering the business, formulating a pay structure, registering employees, calculating pay and deductions, establishing payment cycles, paying taxes timely, issuing payslips, and maintaining accurate payroll records.

Check out our blog for more information about payroll structure and taxation laws in Africa.