In Jamaica, employee salaries are calculated by deducting several statutory contributions from the gross pay to arrive at the final take-home or net pay. These deductions include NHT (National Housing Trust), NIS (National Insurance Scheme), Education Tax, and PAYE (Pay As You Earn) income tax. Each deduction follows a defined formula, and the process must also account for user-defined inputs such as income tax threshold and optional pension contributions.
Step 1: Calculate NHT (National Housing Trust)
NHT is calculated as 2% of the gross salary.
Step 2: Calculate NIS (National Insurance Scheme)
NIS is calculated as 3% of the gross salary. However, the maximum monthly NIS deduction is capped at JMD $12,500.
Step 3: Identify Any Additional Pension Contributions
Users may be contributing to a pension scheme in addition to NIS. These additional pension contributions are added to the NIS amount when determining income tax allowances.
Step 4: Adjust Income Tax Threshold Based on Pay Period
The annual income tax threshold must be divided based on the pay frequency:
Step 5: Calculate PAYE (Pay As You Earn)
Add the NIS amount and any additional pension contribution to the result from Step 4 (adjusted income tax threshold). Multiply the total by 25% to determine the PAYE.
Step 6: Calculate Education Tax
Add the NIS and additional pension. Subtract that combined figure from the gross salary. Multiply the result by 2.25% to get the Education Tax.
Step 7: Calculate Net Pay
Subtract all of the following from the gross pay to get the net pay:
Let's say an employee has a gross monthly salary of JMD 150,000.
Step 1: Calculate NHT
NHT = 2% of JMD 150,000 = JMD 3,000
Step 2: Calculate NIS
NIS = 3% of JMD 150,000 = JMD 4,500 (Since the amount is less than the cap of JMD 12,500, the full value is applied)
Step 3: Identify Any Additional Pension Contributions
Let's assume no additional pension contribution for this example. (If there were, it would be added to NIS when calculating PAYE)
Step 4: Adjust Income Tax Threshold
For this example, the income tax threshold is JMD 1,799,376 per year.
Since it is a monthly salary, we divide the threshold by 12:
Income Tax Threshold = JMD 1,799,376 ÷ 12 = JMD 149,948
Step 5: Calculate PAYE
NIS = JMD 4,500 + Income Tax Threshold (JMD 149,948) = JMD 154,448
Multiply by 25%: JMD 154,448 × 0.25 = JMD 38,612 (PAYE)
Step 6: Calculate Education Tax
Gross Pay = JMD 150,000
NIS = JMD 4,500
Since there is no additional pension, we subtract the NIS from the gross pay: JMD 150,000 - JMD 4,500 = JMD 145,500
Education Tax = 2.25% of JMD 145,500 = JMD 3,278.75
Step 7: Calculate Net Pay
Now, we subtract all the deductions from the gross salary:
Now, let's assume the employee also contributes to a pension scheme. The additional pension contribution is JMD 5,000 per month.
Step 1: Calculate NHT
NHT = 2% of JMD 150,000 = JMD 3,000
Step 2: Calculate NIS
NIS = 3% of JMD 150,000 = JMD 4,500 (Since the amount is less than the cap of JMD 12,500, the full value is applied)
Step 3: Identify Additional Pension Contributions
Additional Pension = JMD 5,000
Step 4: Adjust Income Tax Threshold
For this example, the income tax threshold is JMD 1,799,376 per year.
Since it is a monthly salary, we divide the threshold by 12:
Income Tax Threshold = JMD 1,799,376 ÷ 12 = JMD 149,948
Step 5: Calculate PAYE
NIS + Additional Pension = JMD 4,500 + JMD 5,000 = JMD 9,500
Income Tax Threshold + NIS + Additional Pension = JMD 149,948 + JMD 9,500 = JMD 159,448
Multiply by 25%: JMD 159,448 × 0.25 = JMD 39,862 (PAYE)
Step 6: Calculate Education Tax
Gross Pay = JMD 150,000
NIS + Additional Pension = JMD 4,500 + JMD 5,000 = JMD 9,500
Subtract the combined NIS and Additional Pension from the gross salary: JMD 150,000 - JMD 9,500 = JMD 140,500
Education Tax = 2.25% of JMD 140,500 = JMD 3,161.25
Step 7: Calculate Net Pay
Now, we subtract all the deductions from the gross salary: