Payroll Services Guide for Tanzania Businesses
Tanzania is a nation of great affluence on the African continent. Natural resources are abundant in Tanzania, and different industries are flourishing thanks to these resources. Tanzania, formerly a low-income country, reached low-middle income status in 2020 and has been growing ever since.
Tanzania’s Gross Domestic Product (GDP) reached 67.78 billion dollars in 2021, according to a World Bank report. In 2022, GDP growth is expected to reach 4.5-5.5%. Tanzania has a stable economy, and different companies plan to establish subsidiaries there.
As for the Tanzanian tax system, it is fairly simple to understand, and the government has created different incentives to encourage foreign investment, such as protection against political risks and expropriation. So, if you are thinking of setting up your business in Tanzania, now is the right time.
Nevertheless, establishing a payroll system is essential when starting a business. Onboarding employees to your company requires it. The Federal Law establishes the rules and regulations you must follow when setting up a payroll system in Tanzania.
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How Is Payroll Calculated in Tanzania?
In order to plan employee onboarding for your company, you must set up payroll in Tanzania. A payroll includes information about an employee’s data, working hours, minimum wages, additional benefits offered by employers, and taxes.
Employers must consider the employee’s net salary, gross salary, and overall compensation when calculating payroll. Tanzania also deducts some deductions from gross salaries, including:
Income tax:
Tanzania uses a progressive tax system, where the tax percentage increases as income increases. There is a tax rate range of 0% to 30%. Taxes are not applicable to employees earning less than TZS 270,000 per year. Non-residents of Tanzania will only have to pay tax on their Tanzanian income. The rate of income tax they have to pay is 15%.
Social security contributions:
It is mandatory for employers to contribute to the National Social Security Fund (NSSF). A portion of the employee’s basic income is paid to the fund by the employer. This 20% is contributed by both the employee and the employer. Three types of shares can be agreed between the employee and the employer:
- A 10% employee and a 10% employer
- There are 5% employees and 15% employers
- There are 0% employees and 20% employees
A distribution will be made based on the options listed above by the employer.
Workers’ compensation fund:
Employers in Tanzania are also obligated to contribute to the workers’ compensation fund. The fund will charge employers from the private sector 0.6% starting in 2022. Contributions to the fund are required from employers in the public sector.
You must consider factors such as minimum wages, overtime, applicable deductions, etc., when establishing a Tanzania payroll process. These details should be included in your payroll record.
Important Elements of Salary Structure in Tanzania
Tanzania’s standard payroll rules and regulations divide the salary into various components. Tanzania’s salary structure consists of the following components:
CTC
CTC refers to all payroll-related items, including gross compensation, net salary, basic pay, allowances, and other deductions. Employees receive cash payment instead of this type of payment.
Gross salary
Gross compensation is the total salary determined before deductions, taxes, and other expenses are deducted.
Net salary
Net salary is the take-home pay that employees receive after deductions. As per the company’s policy, these deductions will apply.
Basic salary
There is an approximate 30-35% difference between the basic salary and the gross salary. In this case, the amount is determined before any benefits and contributions have been added or subtracted. Basic pay is determined by an employee’s status and industry standards.
Allowances
In addition to allowances, employees receive payments throughout the year. Different companies offer different types of allowances. In addition, these allowances may or may not be taxed based on Tanzania’s tax rules. The following are some of these allowances:
Allowance for meals
- Allowance for housing
- Allowance for transport
- Allowances for medical care
Getting bonuses
Tanzania does not have any mandatory requirements for an annual bonus. It is possible, however, for employers to pay their employees a yearly premium if they have the budget.
How to Set Up a Payroll in Tanzania?
Incorporate the Tanzania payroll process by understanding the steps involved. Once you have set up your company in Tanzania, you will be able to begin the payroll process. Here are some steps involved in the process:
- The first step is to register your company with the Business Registrations and Licensing Agency (BRELA). A certificate of incorporation and a company identification number will be issued by the registrar.
- Following the registration of your company, you must open a bank account in your company’s name. This account can be used for payments, etc.
- Profile various state and federal tax portfolios and collect workforce financial and tax information. Register your company with the country’s current tax system as well. To obtain a Taxpayer Identification Number (TIN), contact the Tanzania Revenue Authority.
- The next step is to check the overtime and hourly schedules of the employees. In this way, you will be able to determine how much should be credited to employees.
- The gross and net salaries of all employees should be calculated based on the company’s policies, and then deductions should be considered.
- Ensure that your company has a payroll structure in Tanzania
- Different types of employees within the organization require different payment cycles.
- Make a plan for paying your Tanzania payroll taxes on a monthly basis. It is also necessary to make payroll tax contributions and returns at the neighborhood tax office.
A Step-by-step Process of Payroll Processing in Tanzania
Establishing payroll in Tanzania may intimidate you. By taking a step-by-step approach, you can easily navigate the process. Tanzanian payroll processing consists of the following steps:
Step 1: Register with relevant agencies
Registering your company with the appropriate authorities is the first step in processing payroll.
Organisations in Tanzania must register with BRELA. A foreign company gets a compliance certificate, and a local company gets an incorporation certificate upon successful registration.
In order to use these certificates, companies must register with:
- Revenues from Tanzanian taxes
- The National Social Security Fund (NSSF)
- Business licenses are obtained through BRELA
It is also necessary for new employers to register with the workers’ compensation fund control board.
Step 2: Register all your employees in the payroll system
The payroll application that you have in place needs to be updated with all employees. NSSF registration is required for your employees.
The payroll application collects all the necessary information to be submitted to the government and recorded in its records. On the payroll application, employers must provide details about their employees to the government, including:
- Organization’s number of employees
- Payroll software used by the company
- Payroll processing timeline
- Names, addresses, and other personal information of all employees.
Step 3: Calculate the gross pay
Gross pay is the amount earned by an employee before taxes and retirement contributions. On the offer letter for a new employee, the employer must disclose the gross compensation. A standard unit of measurement is an hour, a pay period, or a calendar year.
When determining gross compensation, employers must include taxable fringe benefits. The gross remuneration of employees must also include allowances and other benefits.
Step 4: Consider the deductions
As soon as you calculate the gross pay, you need to subtract all the deductions determined by the company policy. Employees in Tanzania are required to contribute to the National Security Security Fund (NSSF) and higher education student loan boards.
Step 5: Cross-check for errors
Before you process the payroll, cross-verify all components of the salary structure. By reviewing your tax records, general ledger, and payroll register, you can complete the payroll reconciliation process.
Step 6: Distribute the payslips
Payslips must be provided to all employees by their employers. Payslips detail the gross salary and deductions made from it. Additionally, the payslips mention the amount of social security contributions. The payslips are designed and distributed by Tanzanian companies using integrated payroll solutions.
A website has recently been launched by the Tanzanian government that allows employees to obtain their salary payslips. The employee must log in/register with salary slip self-service in order to obtain their pay stub.
Step 7: Payroll records
Once payrolls have been given to employees, all transactions must be recorded by the employer. A company must keep these records for at least seven years in order to prove that employees have been fairly paid.
Payroll Contributions
There are several components that make up payroll. Here are some essential payroll contributions that the company considers:
Minimum wage
The government has prescribed a minimum wage that employers must pay. Different industries in Tanzania have different minimum wages. The price ranges from 40,000 TZS to 400,000 TZS. In banking, finance, etc., the higher amount is generally considered.
Overtime
Tanzanian employees are not allowed to work more than 50 hours per week. If the employer requires the employee to work additional hours, the company will have to compensate separately. Overtime pay is calculated as 150% of the regular pay for employees who work beyond specified hours. Furthermore, employees will receive 200% of their regular salary if they have to work on public holidays.
Social security contributions
To make regular payments towards social security, employees must register with the National Social Security Fund. The employer, however, pays into these accounts on behalf of the employee. A 20% contribution is required to be made to the NSSF. Employees’ monthly income can also be contributed to NSSF by their employers. There should, however, be a cap on the contribution rate at 10%. Here are some arrangements employees can use:
- Employees’ gross salaries are deducted by 10%, and employers’ gross salaries are deducted by 10%.
- A 5% contribution from the employee and a 15% contribution from the employer
- A 0% employee contribution and a 20% employer contribution
A month after the deduction date, employers must send the amount to the NSSF.
Payroll Cycle
Tanzania has no restrictions on the payroll cycle. In accordance with the company’s policies, employees may be paid daily, weekly, biweekly, or monthly. As a result, employers must pay their employees on the date predetermined by the company. It is recommended that employers keep payroll records for at least seven years.
Companies in Tanzania have several options when it comes to payroll
There are different payroll options available to Tanzanian employees. The pros and cons of each option can be compared and then you can choose one based on your needs and budget. There are several options available, including:
- The internal payroll option must be used if you intend to open a significant subsidiary and have the budget and resources to manage payroll internally. Ensure the process runs smoothly by onboarding HR staff.
- A remote payroll option is to add your employees to the remote payroll of your parent firm in another country. All you need to do is follow the laws and regulations of each country.
- Outsourcing locally: You can enlist the help of a Tanzania payroll company to ensure timely payroll payments to your employees, but the firm cannot guarantee compliance.
- Outsource: You can also use an organization like Multiplier to handle your PEO needs. Payroll will be handled by our team of professionals who ensure everything adheres to compliance standards. Having this solution frees you from the burden of managing payroll and allows you to concentrate on expanding your business.
Entitlement and Termination Terms
By having clear termination and entitlement terms, you can avoid lawsuits and employee complaints.
In the employment contract, employers must specify the period of notice. Depending on how long the employee has been with your company and in their position, the termination period varies from four to 28 days. Employees who have worked for their employer for at least a year and are let go for unexplained reasons must receive severance pay.
If an employee is fired from a company in Tanzania, they must be given a written notice of termination.
Tanzania Payroll Processing Company
If you have difficulty processing payroll in Tanzania, you may have difficulty expanding your business. Seek advice from someone who has worked in the field for some time and is familiar with the local rules and regulations that govern payroll policies in Tanzania.
There are several businesses that can guide you through the process. Collaboration with a large PEO organization like Multiplier is an option. Choose a payroll setup process in Tanzania that suits your company’s needs and simplify the payroll setup process.
How Can Multiplier Help With Global Payroll?
Tanzania is a great place for businesses to expand. As the growth process is underway, employers must pay attention to specific tax legislation and labor laws. It is important for business leaders to make sure everything is set up before opening a branch office in Tanzania. From Tanzania payroll regulations to creating a payroll that complies with local laws, you have to stay on top of everything.
Multiplier offers payroll solutions to businesses in 150 countries. We would make setting up Tanzania payroll easier with our one-click payroll system. We can handle your payroll in Tanzania without you having to establish a subsidiary. You can instead focus on your business operations and the new market rather than worrying about labor laws and payroll procedures.
