Every month, an employer in Uganda turns gross pay into net pay by taking off two main statutory deductions: Pay As You Earn (PAYE), the income tax collected by URA, and the employee's contribution to the National Social Security Fund (NSSF). The employer also pays its own NSSF contribution on top. This guide walks through each one, with worked examples.
Step 1: Work out gross pay
Gross pay is everything the employee earns for the month before deductions: basic salary plus allowances such as housing and transport, overtime, bonuses and any arrears. Get this figure right first, because both PAYE and NSSF are worked out from it.
Step 2: NSSF, 5% from the employee and 10% from the employer
NSSF contributions total 15% of the employee's gross pay. The employee pays 5%, which is deducted from their salary, and the employer adds 10% from its own pocket. The employer's 10% does not reduce the employee's pay, but it is part of what the employee costs the business.
Step 3: PAYE from the monthly bands
PAYE for a resident employee is worked out from monthly bands. Each band has a fixed amount of tax for the bands below it, plus a rate on the part of pay that falls inside it.
| Monthly chargeable income | Tax |
|---|---|
| Up to 235,000 | Nil |
| 235,001 to 335,000 | 10% of the amount above 235,000 |
| 335,001 to 410,000 | 10,000 plus 20% of the amount above 335,000 |
| 410,001 to 10,000,000 | 25,000 plus 30% of the amount above 410,000 |
| Above 10,000,000 | As above, plus a further 10% of the amount above 10,000,000 |
Rates and bands change from time to time. Check the current figures with URA before each financial year, and take advice from a tax professional for your own situation. This article is general information, not tax advice.
Worked example: a salary of 2,600,000
Take an employee with a basic salary of 2,000,000, a housing allowance of 400,000 and a transport allowance of 200,000. Gross pay is 2,600,000.
| Line | Amount |
|---|---|
| Gross pay | 2,600,000 |
| Employee NSSF, 5% of 2,600,000 | 130,000 |
| PAYE: 25,000 + 30% × (2,600,000 − 410,000) | 682,000 |
| Net pay: 2,600,000 − 130,000 − 682,000 | 1,788,000 |
| Employer NSSF, 10% of 2,600,000 | 260,000 |
| Cost to the employer: 2,600,000 + 260,000 | 2,860,000 |
Worked example: a salary of 300,000
At 300,000 a month, the pay falls in the second band. PAYE is 10% of the 65,000 above 235,000, which is 6,500. Employee NSSF is 15,000, so net pay before other deductions is 278,500. The employer pays a further 30,000 to NSSF.
Other deductions to remember
- Local Service Tax (LST), charged by local governments in bands by income and collected by the employer in instalments.
- Loans and salary advances agreed with the employee.
- Other agreed deductions, such as staff welfare or union dues.
A month end payroll checklist
- Confirm new joiners, leavers, promotions and salary changes for the month.
- Check every employee has a TIN, an NSSF number and bank details.
- Run the payroll and review any warnings, such as negative net pay.
- Have a second person approve the run before it is posted.
- Post the payroll to the accounts, release payslips and send the bank payment list.
- File and pay PAYE to URA and contributions to NSSF on time.
How Smart Suite helps
Smart Suite HR & Payroll comes with the standard Uganda pay components and the PAYE and NSSF settings installed, which you review each year. Each run checks for missing bank details and tax numbers, must be approved by a different person from the one who prepared it, then posts payslips and the accounting entry to Finance and produces a bank payment list.