Payroll MGMT Learner Guide

Mandeville Campus
College of Business, Education and Healthcare— NCTVET Level 1-3

Business Management Training
Prepare and Interpret Financial Information (PAYROLL)
2020 Jamaican Payroll Guide
Payroll processing in Jamaica consist of 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.
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.
1. Employed in Jamaica under any contract (whether written or oral) of service or

apprenticeship regardless of whether it was expressed or implied.
2. 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.
3. 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.
4. Employed as a pilot, commander, navigator, crew member or any other capacity aboard
any aircraft flying the Jamaican flag.
5. 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.
6. Serving as a member of the Jamaica Defense Force.
7. 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 (2020) 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 2020 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 2020 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, 2020) This is calculated at 3% of Gross Salary

up to a ceiling of $1,500,000 ( per year). The maximum amount an employee pays for NIS is
$37,500 yearly or $3,125 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 the 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 (Effective April 1, 2020)
Employer NHT Contribution: 3% of Gross Salary
Employer ED Tax Contribution: 3.5% of Gross Salary
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.
Payroll Period/Time converter.

Some calculations must be rounded off to the nearest tens.
Convert to Convert to Weekly Convert to Convert to Convery to

Hourly Fortnightly Monthly Yearly
From Divide the – Multiply Multiply Multiply

Weekly Amount by Amount by 2 Amount by 52 Amount by 52
hours and divide by 12 e.g.: $230.76
worked e.g.: $230.76 x52
within the per week * 2 e.g.: $230.76 x
week (40 by =$461.52 per 52 ÷12 =$999.96 =$11,999.52
default) fortnight per month per year
e.g.: $230.76
per week ÷
40 =$5.76
per hour
From Divide the Divide the Amount by 2 – Multiply Multiply

Fortnightly Amount by 2 Amount by 26 Amount by 26
then divide e.g.: $461.52 per fortnight ÷ 2 then divide by
by hours =$230.76 per week 12 E.g.: $461.53
worked per fortnight x
within the e.g.: $461.52 per 26
week (40 by fortnight X
standard) 26÷12 =$11,999.52
per year
e.g.: $461.52 =$11,999.52÷12

per fortnight
=$999.96 per
÷ 2÷ 40
month
= $5.76 per
hour
From Multiply the Multiply the Amount by 12 Multiply – Multiply the

Monthly Amount by then divide by 52 Amount by 12 Amount by 12
12 then then divide by
divide by 52 e.g.: $1,000 per fortnight ÷ 2 26. e.g.
then divide =$230.76 per week
e.g.: $1,000 per $1,000 per
by hours
month X 12 month
worked
within the x12 $12,000
week (40 by =$12,000÷12 per year
standard)
=$461.53 per
e.g.: $1,000 fortnight
per month *
12 ÷ 52
=$5.76 per
hour
From Yearly Divide the Divide the Amount by 52 Divide the Divide the –
Amount by Amount by 26 Amount by 12
52 then e.g.: $12,000 per year ÷ 52
divide by =$230.76 per week e.g. e.g.
hours
$12,000 per $12,000 per year
worked
year ÷ 26 ÷ 12 =$1,000
within the
week (40 by =$461.53 per per month
standard) fortnight
e.g.: $12,000
÷ 12 =
$5.76 per
hour
2020 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
1. PeriodThreshold = $1,500,096.00 / Payroll_Period_Code
2. NISCeiling = $37,500 / Payroll_Period_Code
3. Employee NIS Rate = 3% (Effective April 1, 2020)
4. NHTRate = 2%
5. EDTAXRate = 2.25%
6. PAYERate = 25%
7. SixMilPAYERate = 30%
Employee_NIS = If ((Gross Salary * NIS Rate < NIS Ceiling) then value = (Gross Salary * NIS
Rate) else value= (NIS Ceiling))
Employee_NHT= Gross Salary * NHT Rate

Employee_EDU_Tax = (Gross Salary – NIS Amount) * EDTAX Rate
Income Tax Calculation

If (Gross Salary * 12) >= $6,000,000 Then
Income Tax = (Gross Salary – Employee_NIS – Period Threshold) * (Six Mil PAYE Rate)
Else
Income Tax = If ((Gross Salary – Emp – Period Threshold) * PAYE Rate > 0, (Gross Salary – NIS
Amount – Period Threshold) * PAYE Rate, 0)
End If
Net Salary Calculation

Net_Salary = Gross_Salary – (Employee_NHT+Employee_EDU_Tax+Income Tax+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. Forward all applicable payroll taxes to the government by the mandated due date.
Distribute pay. If checks were cut, retain them in the company safe and distribute them on payday.
Extra control is to require a proof of identification before handing a check to an employee.
What’s new for 2020?

Effective April 1, 2020, NIS deductions will be increased from 3% for employer and employee to
3% each.
If you are new to Payroll or you are frustrated with your current way of doing Payroll, then we have
designed and built an All-In-One Cloud People management software suite featuring Payroll,
HRMIS, Industriliations, and over 10 other seamlessly integrated modules.
It's very reasonable and you are only billed for active employees. Click here to have a look. Buy
Jamaica, Build Jamaica!

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Mandeville Campus

College of Business, Education and Healthcare— NCTVET Level 1-3

2020 Jamaican Payroll Guide

1. Employed in Jamaica under any contract (whether written or oral) of service or

Dividends: Dividend paid to a resident of Jamaica by Jamaican resident companies is currently

Ceiling: This is a limit on an amount that can be taxed.

Period Threshold: Amount of Gross income that is tax-free.

Employee’s NIS Contribution: (Effective April 1, 2020) This is calculated at 3% of Gross Salary

Employee’s NHT Contribution: NHT is payable by the employee at 2% of taxable emoluments.

An Employer makes a contribution of 3% of gross emoluments. If you are within a Self-Employed

Employee’s Education Tax Contribution: Education tax as the name suggests was

Employer HEART Contribution: 3% of Gross Salary

Employer NIS Contribution: 3% of Gross Salary (Effective April 1, 2020)

Employer NHT Contribution: 3% of Gross Salary

Employer ED Tax Contribution: 3.5% of Gross Salary

Preparing for Payroll

Payroll Period/Time converter.

Convert to Convert to Weekly Convert to Convert to Convery to

From Divide the – Multiply Multiply Multiply

From Divide the Divide the Amount by 2 – Multiply Multiply

From Multiply the Multiply the Amount by 12 Multiply – Multiply the

2020 Payroll calculation Formula

Payroll period Codes

Employee_NHT= Gross Salary * NHT Rate

Income Tax Calculation

Net Salary Calculation

What’s new for 2020?

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