Tanzania is one of the most affluent nations on the African continent. Tanzania has abundant natural resources, and different industries are flourishing with the use of these resources. Earlier, a low-income country, Tanzania, achieved low-middle-income status in 2020 and has been growing ever since. As per a World Bank report, Tanzania reached its all-time high Gross Domestic Product (GDP) worth 67.78 billion dollars in 2021. Its GDP growth is expected to reach 4.5-5.5% in 2022. The country has a stable economy, and different businesses plan to set up subsidiaries in Tanzania.
Understanding the tax system of Tanzania is also relatively easy, and the government of Tanzania has chalked out different incentives to motivate foreign investors, like protection against political risks and expropriation. Hence, it is the correct time to set up your business in Tanzania. However, when you set up a company, you must establish a payroll system. It is a prerequisite for onboarding employees to your company. When you set up a payroll system in Tanzania, you must comply with all the rules and regulations that Federal Law establishes.
A global PEO like Multiplier can aid you with establishing a payroll system in Tanzania.
How Is Payroll Calculated in Tanzania?
To plan onboarding employees for your company, you must set up payroll in Tanzania. Information related to employees’ data, working hours, minimum wages, additional benefits offered by employers, and taxes contribute to the payroll of an employee.
While calculating payroll, employers must consider the net salary, gross salary, and overall compensation paid to the employee. In addition, there are some deductions from the gross salary in Tanzania, which are as follows:
- Income tax: Tanzania follows a progressive tax system where the tax percentage increases with the level of income. The tax rate spans from 0% to 30%. No taxes are applicable on employees earning less than TZS 270,000 per year. The non-residents of Tanzania will only have to pay tax on the income that they earn from Tanzania. They have to pay income tax at the rate of 15%.
- Social security contributions: Employers must contribute to the National Social Security Fund (NSSF). The employer pays 20% of the basic income of the employee to the fund. The employee and employer jointly contribute to this 20%. The share between the employee and the employer can take three forms:
- 10% employee and 10% employer
- 5% employee and 15% employer
- 0% employee and 20% employee
The employer will decide the distribution out of the options listed above.
- Workers’ compensation fund: In Tanzania, employers are also liable to make contributions to the workers’ compensation fund. As of 2022, employers from the private sector have to pay 0.6% to the fund. Employers from the public sector have to make a contribution of 0.5% to the fund.
When establishing a Tanzania payroll process, you must consider factors like minimum wages, overtime, applicable deductions, etc. You should maintain a payroll record where you mention all of these details.
Important Elements of Salary Structure in Tanzania
As per Tanzania’s standard payroll rules and regulations, the salary is divided into various components. Among the essential components of the salary structure in Tanzania are:
Cost to Company, or CTC, is the collective term for all payroll-related items such as gross compensation, net salary, basic pay, allowances, and other deductions. It is distinct from the payment that employees receive in cash.
- Gross salary
The gross compensation is the total salary determined before calculating taxes, deductions, etc.
- Net salary
The take-home salary that the employees receive after all deductions is the net salary. These deductions will be applicable as per the policy of company.
- Basic salary
The basic salary is approximately 30-35% of the gross salary. This amount is decided before any benefits and contributions are added or subtracted. The basic pay is determined based on the employee’s status and industry standards.
Employees are entitled to different allowances and receive payments throughout the year. Various companies offer different types of allowances. Also, these allowances may or may not be taxed based on the prevailing taxes rules in Tanzania. Some of these allowances include:
- Meal allowance
- Housing allowance
- Transport allowance
- Medical allowance
There are no mandatory requirements for an annual bonus in Tanzania. However, employers might pay their employees a yearly premium if they have the budget.
How to Set Up a Payroll in Tanzania?
You need to understand the steps involved in incorporating the Tanzania payroll process. Once you set up your company in Tanzania, you can start the payroll. Some steps involved in the process are:
- Firstly, you should register the company by contacting the Business Registrations and Licensing Agency (BRELA). The registrar will issue a company identification number and the incorporation certificate.
- Once your company is registered, you need to open a bank account in your company’s name. You can use this account to make payments, etc.
- Create profiles for various state and federal tax portfolios and collect workforce financial and tax information. Additionally, register your company with the country’s current tax systems. You can contact the Tanzania Revenue Authority to register for a Taxpayer Identification Number (TIN).
- Now, check the employees’ hourly and overtime schedules. This will help you calculate the amount that must be credited to the employees.
- Calculate all employees’ gross and net salaries and then factor in all kinds of deductions per the company policy.
- Formulate a payroll structure in Tanzania for your company
- You need to establish a payment cycle for different types of employees associated with the organization.
- Decide on a time when you will pay your Tanzania payroll taxes each month. Payroll tax contributions and returns must also be made to the neighborhood tax office.
A Step-by-step Process of Payroll Processing in Tanzania
You might be intimidated by establishing payroll in Tanzania. However, if you take a step-by-step approach, you can easily navigate the process. Listed below are the steps involved in payroll processing in Tanzania:
Step 1: Register with relevant agencies
The payroll processing procedure starts with registering your company with the required authorities.
In Tanzania, organizations need to register with BRELA. On successful registration, foreign companies get compliance certificates, and local companies get certificates of incorporation.
Using these certificates, companies have to register to:
- Tanzania Tax Revenue
- National Social Security Funds (NSSF)
- BRELA to obtain licenses for business activities
New employers must also register with the workers’ compensation fund control board.
Step 2: Register all your employees to the payroll system
You need to register all the employees to the payroll application that you have in place. You need to register your employees with NSSF.
The payroll application will collect all the relevant information so that it can be submitted to the government and entered into the government records. Some details that the employers must provide the government about their employees during their registration on the payroll application are:
- Number of employees working in the organization
- The payroll software that the company is using
- Timeline followed for the payroll processing
- Personal information of all the employees, like names, addresses, etc.
Step 3: Calculate the gross pay
The amount earned by an employee before taxes and retirement contributions is gross pay. When employing a new employee, the employer must disclose the gross compensation on the offer letter. The standard units of measurement are hours, pay periods, or calendar years.
Employers are required to include taxable fringe benefits when determining gross compensation. You must also add allowances and other benefits to the gross remuneration of the employees.
Step 4: Consider the deductions
Once you calculate the gross pay, you need to subtract all the deductions decided according to the company policy. In Tanzania, employees must contribute to the National Security Security Fund (NSSF) and higher education student loan boards (when applicable).
Step 5: Cross-check for errors
It will help if you cross-verify all the components of the salary structure before you process the payroll. You can complete the payroll reconciliation process by reviewing your tax records, general ledger, and payroll register.
Step 6: Distribute the payslips
All employers must furnish their employees with payslips. A payslip contains details of the gross pay and the deductions made from the salary. The payslips also mention the amount that is contributed towards social security. Companies in Tanzania use integrated payroll solutions to design the payslips and distribute them to the employees.
Recently, the Tanzanian government has started a website using which employees can get salary payslips. Employees must log in/ register with salary slip self-service to obtain the pay slip.
Step 7: Payroll records
Once the payrolls are given to the employees, the employer must record all the transactions. These records must be kept for at least seven years so that the company has the necessary proof ‘that you have paid the employees fairly.
Several components make up the payroll. Let’s check some essential payroll contributions that the company considers:
Employers must pay at least the minimum wage the government has prescribed. In Tanzania, the minimum wage is different for different industries. It ranges from 40,000 TZS to 400,000 TZS. The higher amount is generally considered in banking, finance, etc.
Employees in Tanzania cannot work beyond 50 hours in 4 weeks. However, should the employer require the employee to work additional hours, the company will have to compensate separately. The employees who work more than specified hours receive an amount equivalent to 150% of their regular pay. Also, if the employees have to work on public holidays, they will be compensated at 200% of their regular salaries.
The employees must register with the Tanzania Revenue Authority when they begin employment. They will receive a unique Tax Identification Number (TIN). Once they receive the number, they can quickly fill out their tax returns. Tanzania follows a progressive taxation system where the tax rate increases with increased income. The tax rate for different income slabs are as follows:
- Up to TZS 1,620,000 – 0%
- TZS 1,620,001 to TZS 4,320,000 – 14%
- TZS 4,320,001 to TZS 6,480,000 – 20%
- TZS 6,480,001 to TZS 8,640,000 – 25%
- Over TZS 8,640,001 – 30%
Even a VAT of 18% is applicable on selling goods and services. Tanzania also levies a withholding tax of 10% on interest income.
Social security contributions
Employees must register with the National Social Security Fund to make regular payments towards social security. However, the employer makes the payments to these accounts on behalf of the employee. A 20% contribution is to be made towards NSSF. Employers can contribute to NSSF from employees’ monthly income as well. However, the contribution rate should not exceed 10%. Employees can use the following arrangements:
- 10% from employees’ gross pay and 10% from employers.
- 5% by the employee and 15% by the employer
- 0% by the employee and 20% by the employer
Employers need to send the amount to the NSSF within one month of the deduction date.
There are no restrictions on the payroll cycle in Tanzania. The company can pay the employees daily, weekly, bi-weekly, or monthly, depending on the company’s policy. However, employers need to pay salaries on the designated date pre-decided by the company. Employers must try to retain the payroll records for at least seven years.
Tanzania Payroll Options for Companies
Tanzania has different payroll options for employees. You can consider the pros and cons of each option and then choose one based on your requirements and budget. Some of these options are:
- Internal payroll: You must use the internal payroll option if you are planning to open a significant subsidiary and have the budget and the resources to manage the payroll internally. You will also have to onboard HR staff to ensure the process goes smoothly.
- Remote payroll: Another choice is to add workers to the remote payroll of your parent firm in another nation. You only need to abide by each country’s appropriate laws and rules.
- Local outsourcing: A Tanzania payroll processing firm will assist you in making timely payments to your employees, but it cannot guarantee compliance; you are still accountable for all the payroll-related decisions in the company.
- Outsource: Another option is outsourcing your PEO to a large organization like Multiplier. Our team of professionals will handle the payroll process and ensure everything adheres to compliance standards. This frees you of the burden of managing payroll and devoting your time to expanding the business.
Entitlement and Termination Terms
You can stay compliant and prevent lawsuits or employee complaints by having clear termination and entitlement terms.
Employers must mention the period of notice in the employment contract. The termination period varies from four to 28 days, depending on how long the employee has worked for your business and in their position. Employers must give severance pay to an employee who was let go for unexplained reasons after working for them for at least a year.
Also, giving a written termination notice to the employees in Tanzania if they are fired from the company is mandatory.
Tanzania Payroll Processing Company
If you are struggling with payroll processing in Tanzania, you may face issues expanding your business there. It would be best if you sought guidance from someone who has been working in the field for some time and is familiar with the local rules and regulations that drive the payroll policies in Tanzania.
There are several businesses out there that can guide you through the procedure. You can collaborate with a large PEO organization like Multiplier. You can consider all your alternatives, choose one that satisfies your company’s needs, and simplify the payroll setup procedure in Tanzania.
How Can Multiplier Help With Global Payroll?
Tanzania is a great place to expand a business. While the growth process is underway, employers must take care of specific tax legislation and labor laws. The business leaders must ensure everything is set up before opening a branch office in Tanzania. You must keep a tab on everything from Tanzania payroll regulations to creating a payroll that complies with local laws.
Multiplier provides payroll solutions to businesses in 150 different countries. Our one-click payroll system would make setting up Tanzania payroll easier. With our assistance, you won’t need to establish a subsidiary in Tanzania to handle your payroll. Rather than worrying about adhering to labor rules and payroll procedures, your company may focus on its operations and the new market.