Jamaican Payroll Guide-April 2022 to March 2023
Payroll processing in Jamaica consists of the calculation of payments to employees for their work in the company – whether it is based on time or productivity, calculation of benefits, and statutory deductions. Payroll needs to be processed by each organization periodically. It may be processed weekly, fortnightly, monthly or daily (for daily wage workers).
Payroll calculation may be viewed by some as a complicated process that varies from company to company. Each organization may have its own payroll structure consisting of various payroll components that may be unique to that company only.
As with the labor Laws, payroll processing and calculations are governed by the Government of Jamaica through the Tax administration department using a system called The Pay As You Earn (PAYE). The PAYE system is a method of paying income tax and national insurance contributions. to meet statutory compliance, Employers should deduct tax and national insurance contributions from wages or occupational pension before paying over wages or pension.
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Important Payroll definitions
Employee: An Employee is someone at/over the age of 18 and under the age of retirement, gainfully occupied in employment and not earning less than the minimum wage.
- Employed in Jamaica under any contract (whether written or oral) of service or apprenticeship regardless of whether it was expressed or implied.
- Employed outside of Jamaica under any contract (whether written or oral) of service or apprenticeship regardless of whether it was expressed or implied, by a person/company/business domiciled (based) in Jamaica.
- Employed as a master or a member (or in another capacity as a part) of the crew of any vessel registered in Jamaica or any other vessel of which the managing owner or manager resides or has his/her principal place of business in Jamaica.
- Employed as a pilot, commander, navigator, crew member or any other capacity aboard any aircraft flying the Jamaican flag.
- Employed (as a citizen of Jamaica) outside of Jamaica by a Jamaican Embassy, Jamaican High Commission, Jamaican Consulate, Jamaican business/company (meaning one that was incorporated in Jamaica) or a resident abroad.
- Serving as a member of the Jamaica Defense Force.
- Employed under a contract of service by your spouse.
Gross salary: Gross income is all a person’s receipts and gains from all sources, before any deductions.
Taxable Income: Taxable income is the amount of income used to calculate how much tax an individual or a company owes to the government in a given tax year.
Statutory Income: Statutory Income as defined in the income tax act means, subject to section 6, the aggregate amount of income of any person from all sources remaining after allowing the appropriate deductions and exemptions under the act. This is the employee’s Gross salary Less Allowable Deductions such as contributions for NIS, Approved Pension and Employees Share Ownership Plan (ESOP).
Dividends: Dividend paid to a resident of Jamaica by Jamaican resident companies is currently subject to a withholding tax rate of 15%; based on the legislation the withholding tax on dividend is a final tax and therefore tax on dividend cannot be used as a credit against any other income. Dividend income should be deducted before the application of any other rate of tax of zero, 25% and 30%. A final tax is the full amount of tax due and payable on that source of income.
Self Employed Individuals: These individuals are required to file estimated income tax returns for the year of assessment (2022) and pay their estimated income tax liability in quarterly installments.
Nontaxable Income: The Tax Administration considers almost every type of income taxable, but a small number of income streams are considered nontaxable. For example, if you are the Governor-General of Jamaica or an approved farmer (under Section 36D of the Income Tax Act) or a handicap/disabled person (as defined by Section12 (y) (i) of the Income Tax Act) -, your income is nontaxable. Additionally, Allowances of High Court and Supreme Court Judges and Child support received should be nontaxable.
Ceiling: This is a limit on an amount that can be taxed.
Period Threshold: Amount of Gross income that is tax-free.
Income Tax: An income tax is a tax that the Government of Jamaica imposes on income generated by businesses and individuals. By law, taxpayers must file an income tax return annually to determine their tax obligations. Income taxes are a source of revenue for governments. They are used to fund public services, pay government obligations, and provide goods for citizens. The current Income tax rate in 2022 is 0% for annual taxable earnings up to $1,500,096, 25% for annual taxable earnings up to $6,000,000 and 30% for annual taxable earnings over $6,000,000. Persons who attain age 65 or become pensionable at any time during 2022 will be entitled to the relevant exemptions for the full year.
Net Pay: The portion of money received by an employee after the total amount has been withheld for state tax deduction is fundamentally what ‘’net pay’’ stands for. Therefore, to put it in layman’s terms, the amount of money that comes in an individual’s paycheck is what net pay is.
Employee’s NIS Contribution: (Effective April 1, 2021) This is calculated at 3% of Gross Salary up to a ceiling of $3,000,000 ( per year). The maximum amount an employee pays for NIS is $150,000 yearly or $12,500 monthly.
Employee’s NHT Contribution: NHT is payable by the employee at 2% of taxable emoluments. The contributions together with any accrued bonus or interest are refundable to the contributor on an annual basis after seven years and fully on retirement. Note that the expatriate employee is refunded the full sum when he leaves the island. Self-employed persons pay NHT of 3% on chargeable income.
An employer makes a contribution of 3% of gross emoluments. If you are within a Self-Employed category of 1 – 5 then you will be required to contribute 3% of your income. If, however, you are classified within the categories of 6 –7 you will instead be required to contribute 2% of your income.
Employee’s Education Tax Contribution: Education Tax as the name suggests was implemented with the intention to advance education in Jamaica. The law was established in July 1983 by the Education Tax Act. However, the tax collected under this legislation goes directly into the consolidated fund which is a pool of funds used by the government for public benefit. The education tax is payable on statutory income, that is, gross income less NIS and any payment to an approved pension fund at a rate of 2.25%
Employers Education Tax Contribution: The following employers are exempt from paying the employer’s portion of the Education Tax: A Ministry or Department of Government, Parish Councils, Kingston and St Andrew Corporation, The University of the West Indies, Additionally the following entities located in Jamaica are not to liable pay education tax in respect of Jamaican citizens employed to them: A foreign embassy, High Commission, Consulate or agency of the United Nations, or, International organization entitled to diplomatic privileges under the Diplomatic Immunities.
Employer HEART Contribution: 3% of Gross Salary
Employer NIS Contribution: 3% of Gross Salary
Employer NHT Contribution: 3% of Gross Salary
Employer ED Tax Contribution: 3.5% of Gross Salary
Rules
| RULE |
VALUE |
EFFECTIVE |
TO |
| Income Tax Percentage |
25% |
April 1, 2022 |
March 31, 2023 |
| Income Tax Threshold |
$1,500,096.00 |
April 1, 2022 |
March 31, 2023 |
| Maximum NIS per month |
$12,500 |
April 1, 2022 |
March 31, 2023 |
| Annual NIS Ceiling Maximum NIS deductable |
$150,000 |
April 1, 2022 |
March 31, 2023 |
| Employee NIS Rate |
3.00% |
April 1, 2022 |
March 31, 2023 |
| Employee NHT Rate |
2.25% |
April 1, 2022 |
March 31, 2023 |
| Employee Education Tax Rate |
0.225% |
April 1, 2022 |
March 31, 2023 |
| >6 Mil Income Tax Percentage |
30% |
April 1, 2022 |
March 31, 2023 |
| Employer NIS Rate |
3.00% |
April 1, 2022 |
March 31, 2023 |
| Employer NHT Rate |
3.00% |
April 1, 2022 |
March 31, 2023 |
| Employer Education Tax Rate |
3.50% |
April 1, 2022 |
March 31, 2023 |
| Employer HEART Rate |
3.00% |
April 1, 2022 |
March 31, 2023 |
| Retirement Age-Male |
70 |
April 1, 2022 |
March 31, 2023 |
| Retirement Age-Female |
65 |
April 1, 2022 |
March 31, 2023 |
| Minimum Wage (Hourly Rate) |
$ 225.00 |
April 1, 2022 |
March 31, 2023 |
| Security Guards-Minimum Wage |
$262.5 |
April 1, 2022 |
March 31, 2023 |
| Security Guards-Dog handlers’ premium allowance |
$35.72 |
April 1, 2022 |
March 31, 2023 |
| Security Guards-Firearm premium allowance |
$51.95 |
April 1, 2022 |
March 31, 2023 |
| Security Guards-Laundry allowance |
$47.62 |
April 1, 2022 |
March 31, 2023 |
| Indemnity protection and dismemberment coverage |
$2,970,000 |
April 1, 2022 |
March 31, 2023 |
| Income Tax Threshold-Pensioners < Age 55 |
$ 1,500,096.00 |
April 1, 2022 |
March 31, 2023 |
| Income Tax Threshold-Pensioners >= Age 56 &<=64 |
$ 1,580,096.00 |
April 1, 2022 |
March 31, 2023 |
| Income Tax Threshold-Pensioners >= Age 65 |
$ 1,660,096.00 |
April 1, 2022 |
March 31, 2023 |
Preparing for Payroll
Employees must be compensated for the work they do, and it is the employer’s responsibility to ensure that this happens. You can handle employee payroll in different ways, such as manually, with an in-house computerized system or outsourcing it to a payroll service. Each system requires different tasks. Regardless of the system used, some general principles apply when calculating employee payroll.
The calculation of payroll is a highly regimented process. This calculation should be followed meticulously, to ensure that there are no mistakes in the amount of net pay issued to employees, or taxes paid to the government. The calculation steps for payroll are as follows:
Notify employees. If applicable, tell employees to complete their timesheets, commission reports and any new amendments to their salary deduction records. Over time, in particular, should be approved, since it is 50% more expensive than regular pay.
Enter hours worked. Enter this information if the hours worked information is collected manually. Otherwise, it may already be in the system.
Enter wage rate changes. Enter all authorized changes into the payroll system for wage rate alterations, withholdings, and deductions. In particular, ensure that all deductions have been entered for adjustments to gross wages for tax purposes since they impact the amount of payroll taxes paid.
2022 Payroll calculation Formula
Payroll period Codes
Usually the government list ceilings and tax thresholds as an annual figure. Period codes help to break down those figures to represent the period you are paying an employee for. In other words, you can’t factor the Income-tax threshold of $1,500,096.00 in a bi-weekly payroll unless you divide that figure by 26 fortnights.
- Monthly=12
- Weekly=48
- Fortnightly =26
Payroll Variables
- PeriodThreshold = $1,500,096.00 / Payroll_Period_Code
- Maximum NIS: = $150,000 / Payroll_Period_Code
- Employee NIS Rate = 3% (Effective April 1, 2021)
- NHTRate = 2%
- EDTAXRate = 2.25%
- PAYERate = 25%
- SixMilPAYERate = 30%
Employee_NIS = If((GrossSalary * NISRate < MaximumNIS) then value =(GrossSalary * NISRate) else value= (MaximumNIS))
Employee_NHT= GrossSalary * NHTRate
Employee_EDU_Tax = (GrossSalary – MaximumNIS) * EDTAXRate
Income Tax Calculation
If (GrossSalary * 12) >= $6,000,000 Then
IncomeTax = (GrossSalary – Employee_NIS – PeriodThreshold) * (SixMilPAYERate)
Else
IncomeTax = If((GrossSalary – Emp – PeriodThreshold) * PAYERate > 0, (GrossSalary – NISAmount – PeriodThreshold) * PAYERate, 0)
End If
Net Salary Calculation
Net_Salary= Gross_Salary – (Employee_NHT+Employee_EDU_Tax+IncomeTax+Other deductions)
Post Payroll
Review. Print a preliminary payroll register and examine the gross pay, deductions, and net pay for each employee, to ensure that it is correct. If it is not correct, revise the prior entries and run another preliminary payroll register.
Pay employees. Cut paychecks and remittance advice. Also, print a final payroll register and archive it. Have an authorized person sign the checks. Alternatively, issue electronic payments to employees.
Remit taxes online using this : S01 Excel template .
Distribute pay. If checks were cut, retain them in the company safe and distribute them on payday. Extra control is to require proof of identification before handing a check to an employee.