Uganda is strategically located in the heart of East and Central Africa. The country has to offer the great economic potential to the companies establishing a business here.
The country has a young, talented, and rapidly growing population. In 2021, the adult literacy rate reached its highest at 79%. With several job opportunities in the country, the unemployment rate in Uganda reduced to 4.3% in 2021.
When hiring employees in Uganda, companies should primarily focus on the payroll policies and procedures in Uganda. It ensures the best outcome regarding rightful payment to employees. This article aims to provide the payroll compliance checklist in Uganda and attempts to make payroll requirements clear to organizations and businesses.
How Is Payroll Calculated in Uganda?
Employers calculate the payment plan under the PAYE scheme. Let’s look at the following pointers to understand how the payroll works in Uganda.
- Payroll rules and regulations in Uganda: Per the Uganda Revenue Authority, Ugandan employers must register under the Pay-As-You-Earn and submit the Uganda employer payroll taxes to the tax authority every month. Employers can even keep accurate records of all employees’ salary payments, deductions, and contributions.
- Payroll Tax in Uganda: Employers in Uganda have to pay a payroll tax calculated as a percentage of employee salary payments. This percentage is based on the employee’s salary bracket, which the Uganda Revenue Authority determines.
- How to do payroll in Uganda: Employers must first register for PAYE with the Uganda Revenue Authority. After registering, employers must calculate the payroll tax based on the employee’s salary bracket. Employers can withhold this amount and other deductions from the employee’s salary. Lastly, they must submit the payroll taxes to the Uganda Revenue Authority monthly.
Important Elements of Salary Structure in Uganda
Here are the crucial elements of the salary structure in Uganda.
- Gross salary: It is the monthly or yearly salary before companies make any deductions to it. Gross salary usually includes employee saving schemes, taxes, net pay, and other elements.
- Net salary: The takeaway salary or the amount employees receive in their bank accounts after all the deductions are made.
- Bonuses applicable: Depending on the company payroll rules and regulations in Uganda, bonuses are added to the net salary. These are shared directly with the employee.
- Basic salary: The base income includes 35-50% of the total salary. It is the base income paid to employees without any reductions or additions such as bonuses.
How to Set Up a Payroll in Uganda
The payroll rules and regulations in Uganda state the requirement of specific documents for payroll processing. For setting up payroll in Uganda, employers need to follow the given steps-
- Register the business with the Uganda Registration Services Bureau (URSB)
- Obtain a tax clearance certificate from the Uganda Revenue Authority (URA)
- Register a Social Security number with the National Social Security Fund (NSSF)
- Collect employee documents to get all their details, including their salaries, social security number, and others.
- Choose a payroll schedule.
- Open a registered payroll bank account.
A Step-by-step Process of Payroll Processing in Uganda
Government policies handle the Ugandan payroll process. Refer to these pointers to learn how an employer can develop payroll processing.
Establish an Employer Taxpayer Identification Number
- The Taxpayer Identification Number (TIN) withholds a 10-digit identification number. The Uganda Revenue Authority (URA) offers this to employers meeting tax requirements. This number is also helpful while filing tax returns, claiming tax benefits, and processing several loans.
- Other areas include importing and exporting goods and acquiring land and service licenses. The procedure for applying for a TIN is free, with the employers receiving it within 21 working days.
Collect employee information
- Employers can collect employees’ tax information, including income tax, income, and local service tax. If the employee falls under the required tax bracket, they must pay a certain percentage of their income to the government. There are three areas that need focus here:
- Income tax: National citizens should file the income tax, while non-citizens can file for tariffs if they have generated income through Ugandan sources. The PAYE or Pay-As-You-Earn system ensures a steady Uganda payroll tax rate for employees rating from 0-40%.
- LST – The Local Service Tax (LST) outlines the tax levied on an employee’s income, precisely gross earnings, to tax income. Employers can opt for payment in the first four months of any nationally-approved financial year.
- Income/Salary: This area overlooks the income approved by the employer along with employment benefits, incentives, bonuses, overtime pay, termination benefits, various benefits, gratuities, and minimum wage. The average Ugandan employer can withhold taxes before paying them by the 15th of every month.
Employ a payroll schedule
The general rule is to pay every month. However, companies can opt-in for a weekly, biweekly and bi-monthly payment schedule. It must also record tax payments, filing dates, and all entitled holidays.
Calculate the total gross salary/wages
The employer has to calculate the gross earnings for the employee with all the factors, such as benefits and incentives combined. It also includes estimating the net salary and the cost-to-company. They must also have overtime hours and make necessary amends before putting it in the papers.
In this area, employers can work out deductions liable on the payroll, including withholding taxes, laying out specific areas for insurance retirement savings, and a contribution towards the National Social Security Fund (Amendments) Act, 2021.
Report to the Uganda Revenue Authority
Employers must report all taxation activities to the Uganda Revenue Authority. The regulatory body of the Uganda Revenue Authority ensures proper compliance. An ideal payroll record should show evidence of NSSF and withheld payroll deductions in Uganda.
The payroll contribution is summarized using the table –
Contributions and taxes
Contributions to social security
Local service tax
The payroll tax in Uganda requires the individual to submit their tax bracket depending on which they can pay from UGX 5,000-100,000 annually.
The employer has the right to withhold the tax from the employee for paying it to the local municipal authorities.
Uganda’s payroll cycle can be bi-weekly or monthly, depending on the employer’s convenience. Employers must mention the payroll cycle schedule in the payroll policy and share it with the employees. It ensures transparency and employees are aware of when to expect the payment.
Uganda Payroll Options for Companies
HR payroll in Uganda allows for the implementation of several options and choices. Let’s discuss some of these –
- Internal payroll: An extensive company or conglomerate established over the years can easily take care of payroll within its establishment. For the same reason, large companies employ payroll software for internal employee payments, making this a convenient process.
- Local outsourcing payroll: Outsourcing companies ensure timely payments through a traditional medium. It can be a straightforward process for generating payroll.
- Remote payroll: Employers wishing to conduct business remotely can go for this process. This option works best for employees from a remote Uganda region. However, the employer must abide by stringent Ugandan national laws for payroll processing.
Entitlement and Termination Terms
Mentioned are the entitlement and termination terms employers usually add to employment contracts.
The minimum wage per the rules and regulations in Uganda is 6000 UGX.
The employee can work up to 56 hours per week without exceeding 10 hours daily.
In terms of leave entitlement, the Uganda payroll guide takes over the following areas –
- Maternity leave: Employees who recently gave birth are entitled to up to 60 working days’ leave with full pay. This leave is applicable immediately after the delivery of the child/children. In the unfortunate event of a miscarriage, the employee receives up to four weeks of fully-paid leave. For the maternity leave to be accepted, the employee has to submit a prior document for seven days.
- Paternity leave: In the event of birth, the employee can claim up to four working days of fully paid leave which remains the same in case of a miscarriage.
- Sick leave: Employees who have worked for at least a month can claim full-pay ill leave. It applies to a month; however, in the case of the second month, the employer can terminate the contract.
- Annual leave: According to Uganda payroll requirements, eligible employees can claim up to seven days of continuous leave after every four months of dedicated service. In all totality, employees are entitled to 21 days of vacation annually.
- Compassionate leave: Employees receive this leave in the event of grave illness or bereavement. This leave can extend up to 14 days.
- Public holidays: Outside of the working days, the employees are entitled to up to 15 holidays. Below is the list of all the holidays.
List of public holidays as approved by the Ugandan government
New Year’s Day
NRM Liberation Day
Archbishop Janani Luwum Memorial Day
International Women’s Day
Uganda Martyrs’ Day
Ugandan National Heroes’ Day
Independence Day of Uganda
The payroll rules and regulations in Uganda allow for these provisions before terminating an employee from a contractual viewpoint.
Notice period as stated
Employment exceeding six months but not more than 12 months
A minimum of two weeks
Employment for more than a period of one month but not crossing five years
A minimum of one month
Employment exceeding more than five years but less than ten years
A minimum of two months
Employment of more than 120 months, i.e., ten years or more
A minimum of three months
Uganda Payroll Processing Company
The ideal payroll processing company will provide its clients with the requirements for maintaining compliance. It should offer full-service payroll management, including giving timely salaries, filing taxes, and required human resources services. These include offering employees technical support in case of any discrepancy. It also includes addressing queries relevant to payroll processing.
A good payroll processing company will also include tools catering to the Uganda payroll process —reporting dashboard, attendance trackers, and self-service portals.
How Multiplier Can Help With Global Payroll?
With Multiplier, employers can tactfully manage employee payroll in several countries and adhere to local laws.
Multiplier’s unified platform ensures that businesses are assertive with automated tax calculations, compliance checks, currency conversions, and more. We can also help reduce overhead costs and expenditures associated with the company and handle manual errors.