DEFINITION of 'Pay As You Earn - PAYE'

A system of income tax withholding that requires employers to deduct income tax, and in some cases, the employee portion of social benefit taxes, from each paycheck delivered to employees. The pay as you earn (PAYE) system requires that employers then must remit the deducted amount to the proper government authority. The PAYE system was developed in 1944 by Sir Paul Chambers in the United Kingdom.

BREAKING DOWN 'Pay As You Earn - PAYE'

The pay as you earn system is a requirement in the United Kingdom for all salary earnings, as well as other forms of compensation, if the earnings are expected to meet the National Insurance Lower Income Level. PAYE is also utilized in Ireland and New Zealand, and other counties use similar systems, such as Australia's Pay As You Go (PAYG) withholding system.

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