How to Run Payroll in Lesotho: Employment Taxes & Setup

Milani Notshe

Research Specialist

Last Updated

December 18, 2025

In This Guide

Example H2

Leave The hiring
to a local expert

Hire in Lesotho with ease—our experts handle employment and compliance for you.

Enquire Now

Running payroll in Lesotho involves many moving parts before your team sees money land in their accounts. Each month you need to calculate gross-to-net correctly, apply statutory withholdings and employer contributions, issue compliant payslips, plus file and remit on schedule. If anything slips through the cracks, you could face penalties, back-pay exposure, and unnecessary friction with your people.

If you’re hiring in Lesotho, whether you’re building a local presence or expanding your global footprint, this guide is for you. We’ll walk through the choices and compliance requirements that have the biggest impact on your speed and risk, from entity vs. no-entity hiring to worker classification and the statutory bodies you’ll interact with along the way. By the end, you’ll know exactly what to expect and how to keep payroll running smoothly, wherever you’re hiring.

Key Takeaways

Payroll cycle: Employers in Lesotho generally process payroll on a monthly basis.

Tax filing: PAYE income tax and social security-related contributions (where applicable) are typically reported and remitted monthly.

Employer taxes: Employer obligations mainly include workers’ compensation and statutory levies, with specific requirements varying by sector.

Tax year: Lesotho’s tax year runs from April 1 to March 31.

Payroll processing methods: Payroll is commonly managed in-house or outsourced to providers familiar with Lesotho’s PAYE and statutory reporting requirements.

How to Choose Your Payroll Structure in Lesotho

Expanding into Lesotho? Building a compliant payroll setup involves much more than simply paying salaries. You’ll be responsible for employment compliance, monthly tax and social declarations, and mandatory benefits. Even small delays in filings or payments can lead to real penalties.

You have several operating models to choose from to make this easier. The right one depends on your legal footprint, your appetite for risk, and how quickly you need to start hiring. Let’s break down the main options and when to use each.

1. No Local Entity in Lesotho: Use an Employer of Record (EOR)

If you don’t yet have a legal entity in Lesotho, an Employer of Record is usually the fastest and lowest-risk way to hire. An EOR becomes the legal employer on paper, provides locally compliant employment contracts, and manages payroll under local regulations, while you continue to direct the work and manage performance.

This model is ideal for:

Testing a new market
Hiring your first team members
Scaling a distributed workforce without building local infrastructure,

Why it’s the fastest and least risky option:

You skip the lengthy process (and cost) of setting up an entity.
All local registrations, monthly declarations, and statutory payments are handled by a provider already set up in-country, dramatically reducing your compliance risk.

2. You Have a Lesotho Entity: Run In-Country Payroll

If you already operate a local entity, or you’re planning to establish one, running payroll directly gives you maximum flexibility and control. You can set your own policies, design benefits, and align payroll closely with your finance and internal approval processes. But this also comes with greater operational responsibility.

What you’re responsible for:

Registering with relevant authorities and maintaining compliance with statutory bodies (often involving CSS/IPRES or similar local institutions).
Accurately calculating and remitting payroll taxes and contributions every month – plus handling year-end requirements.
Issuing compliant payslips and maintaining audit-ready payroll documentation.

When this option makes sense:

You’re hiring at scale and want payroll fully “in-house,” even if you partner with a local provider for execution.
You need deeper integration with finance systems or custom benefit structures.

If you want to keep the entity but offload the admin, many employers choose global payroll services to handle calculations, filings, and payments while they remain the legal employer.

3. Contractors Only: Use Contractor Management

Paying independent contractors is often simpler than setting up full payroll, especially for short-term or highly specialized work.

However, you need to watch out for misclassification risk. In Lesotho, as in many jurisdictions, someone may legally qualify as an employee based on how they work – not what their contract says. If they’re under your direction, working like an employee, you may be responsible for full employer obligations.

When contractor payments work well:

You need specialised expertise for a defined scope or timeframe
The contractor operates independently, not under your control or supervision

You can also use contractor management services to streamline compliant contracts, invoicing, and payments.

Run Compliant, On-Time Payroll In Lesotho

Switch to using a single source of truth to manage payments, taxes, benefits, and reporting from one powerful dashboard.

Book a Demo

What To Know About Payroll Processing In Lesotho

Managing payroll taxes in Lesotho is a critical task for any business, whether you’re a small startup with a handful of staff or a larger enterprise operating across multiple locations. In Lesotho, employers must contend with withholding personal income tax (PAYE), possible contributions to workmen’s compensation or industrial injury funds, and certain withholding taxes on payments to contractors or non-residents. Getting it right matters. Failing to withhold correctly or to remit on time can lead to penalties, interest, audits, or strained relationships with employees who see unexpected deductions.

This article aims to demystify payroll tax obligations in Lesotho. You’ll learn how taxes are calculated, when and how to file and pay, what rules differ by business size or whether the employer is local or foreign, and how to maintain compliance.

Fiscal Year in Lesotho

April 1st - March 31st is the 12-month accounting period that businesses in Lesotho use for financial and tax reporting purposes.

Payroll Cycle in Lesotho

The payroll cycle in Lesotho is usually Monthly, with employees being paid last day of the month.

Minimum Wage in Lesotho

In April 2025, Lesotho’s government enacted a 5 percent increase to all sectoral minimum wages for the 2025/2026 financial year, bringing factory‐sector rates to between LSL 2 724 and LSL 3 041 per month; construction to LSL 3 226–LSL 5 664; wholesale and retail to LSL 3 088–LSL 3 276; small retail to LSL 2 792–LSL 2 950; hospitality to LSL 2 779–LSL 3 058; and domestic workers to LSL 872.

Bonus Payments in Lesotho

There is no mandatory provision for a 13th-month salary in Lesotho.

Types Of Payroll Taxes In Lesotho

In Lesotho, the landscape of payroll taxes is not overly fragmented, but there are several major categories you must be aware of. Each carries its own rules, thresholds, and compliance requirements.

Tax Example 1: Pay As You Earn (PAYE) / Employee Income Tax Withholding

PAYE is the primary mechanism by which the government collects income tax from employees. Employers must withhold tax from each employee’s remuneration (salaries, wages, bonuses, allowances, benefits in kind) and remit that to the Revenue Services Lesotho (RSL).

Key features include:

Why required: Ensures the government collects income tax progressively through the year, rather than requiring large lump sums later.
Rates / thresholds: As of April 2025, resident individuals pay 20% on income up to LSL 74,040 per year and 30% on income above that.
Tax credit / rebate: Residents are entitled to a non-refundable tax credit of LSL 11,640 per year (or LSL 970 per month) to reduce their liability.
Deductible contributions: Employee contributions to approved pension or provident funds (up to 20% of employment income) may be deductible before applying tax brackets.
Deadline / penalties: The withheld tax must be remitted to the RSL by the 15th of the month following the pay period. Late remittance or incorrect withholding can result in penalties, interest charges, or audits.

Tax Example 2: Withholding Tax on Contractors, Technical Services & Non-residents

Beyond regular employee tax, Lesotho imposes withholding taxes (WHT) on various types of payments, particularly when dealing with contractors, service providers, or non-residents.

Key points:

What / why: When paying for services (accounting, consulting, legal, technical, construction, etc.), the payer (often the business) must withhold a portion of the payment as tax and remit it. This helps ensure income is taxed even when the recipient is not a resident.
Rates:
- Resident contractors: 5% withholding tax
- Non-resident contractors: 10%
- Non-resident technical / service income (e.g. from RSA): 7.5% (in some cases)
Deadlines / remittance: Must be withheld at the time of payment, and remitted to RSL monthly by the 15th following the end of the period in which the withholding occurred.
Penalties: Failing to withhold or remit can attract fines, interest, and possibly disallowance of certain deductions.

Tax Example 3: Fringe Benefits Tax (FBT) / Benefits in Kind

Lesotho imposes taxation on certain benefits or perks an employee receives beyond salary.

Key facts:

What / why: Benefits such as housing, vehicles, utilities, or other perks are sometimes viewed as additional compensation and taxed under FBT rules or included as part of employment income.
Rate: The FBT rate is 40% on the taxable portion of the benefit.
Integration / reporting: If FBT applies, those benefits should not be double counted as taxable in both payroll and separate benefit regimes. Employers need to assess whether they operate a formal FBT regime or include benefit values in income subject to PAYE.
Penalties: Mis-reporting or non-inclusion of benefits can trigger audits, additional taxes, and penalties.

How To Pay Employees In Lesotho

Once you’ve calculated gross pay and withheld the necessary taxes, the process of actually paying employees in Lesotho has its own practical steps.

In Lesotho, the standard method for salary disbursement is via bank transfer to the employee’s local bank account. Employers generally pay salaries in the local currency, the Lesotho loti (LSL). While the South African rand (ZAR) is legal tender in some contexts, payroll practice is to use LSL consistently.

Salaries are typically paid monthly, often on or before the last working day of the month. Employees must be issued payslips that clearly show gross pay, all deductions (taxes, benefits, contributions), and net pay.

For foreign employers without a local Lesotho-registered entity, partnering with a payroll provider or using an Employer of Record (EOR) ensures compliance with registrations, filings, and remittances.

Key considerations at a glance:

Payment method: Bank transfer is the norm; cash is rare and more regulated
Currency: Salaries generally paid in Lesotho loti (LSL)
Frequency / timing: Monthly payments, typically by the end of the month
Foreign employers: Use EOR or local payroll provider if no local entity
Payslips: Must detail gross pay, each deduction, and net pay

Payroll Set Up Checklist (Entity Vs No-Entity)

Getting payroll set up correctly from the start is crucial. It protects you legally, builds trust with employees, and avoids headaches down the road.

Register with RSL (Revenue Services Lesotho) to obtain a Taxpayer Identification Number (TIN) and PAYE registration
Gather employee data: personal info, bank details, tax status, allowances, pension fund membership, benefit elections
Define pay periods and dates for processing
Determine gross pay elements: base salary, overtime, allowances, bonuses, benefits
Implement deduction rules: PAYE, withholding taxes, FBT, pension contributions, other statutory deductions
Choose payroll system or provider to automate calculation, withholding, recordkeeping, and filing

Other key points:

Use official tax tables or approved payroll software to ensure correct withholding
Maintain contemporaneous records (payroll registers, payslips, remittance confirmations)
Train payroll staff or the provider to stay current on tax updates and regulatory changes

Running Payroll Processing in Lesotho

So, what does it actually take to run payroll in Lesotho? It involves calculating monthly salaries, applying the right statutory deductions, and making sure your team gets paid accurately and on time, while staying fully compliant with local tax and labour laws.

Let’s walk through what that looks like in practice:

Monthly Payroll Workflow

Gather all the essentials: hours worked, leave taken, new joiners, leavers, and any salary or benefit changes.
Double-check timesheets, leave balances, overtime, and any variable pay to make sure everything is accurate.
Work out gross earnings, including base salary, bonuses, commissions, and allowances.
Apply mandatory and voluntary deductions, like income tax, pension contributions, benefits, and any company-specific deductions. Then, calculate net pay after all deductions.
Run internal reviews, compare with previous payroll cycles, and get the necessary approvals.
Pay employees via bank transfer and share payslips through email or your payroll system.
Send statutory payments and required reports to tax authorities.
Update your records and ensure payroll entries flow correctly into your accounting system.
Share payroll summaries with finance and address any open questions or discrepancies.

How Playroll Streamlines Processing

Keeping track of all these steps, especially in a new market, is no easy task. Regulations change, requirements shift, and it’s easy for things to fall through the cracks. Playroll makes this effortless by managing the entire payroll process for you: onboarding employees, handling calculations and deductions, issuing payslips, transferring funds in Lesotho loti, and taking care of statutory filings and compliance.

Income Tax And Social Security In Lesotho

Understanding the tax obligations for both employers and employees is crucial when operating in Lesotho’s business landscape. The main payroll burdens fall on correctly withholding employee income tax (PAYE) and managing withholding taxes on service payments or non-resident payees. Employers rarely face broad social security burdens but must remain aware of specific industry liabilities such as workmen’s compensation and ensure benefits and fringe perks are handled correctly.

Managing Common Payroll Challenges in Lesotho

Global employers operating in Lesotho often encounter unique payroll challenges that can affect compliance and efficiency, like navigating evolving tax laws and managing employee data. With a need for real-time accuracy, modern organizations must develop strategies to overcome these challenges effectively. Below, we explore some of the most common payroll hurdles and provide actionable solutions to streamline payroll processes in Lesotho.

Maintaining Accurate And Detailed Payroll Reports

Maintaining accurate global payroll reports is often challenging due to currency exchange complexities, data integration issues, and the need to keep employee information up-to-date –including tax information, hours worked, leave balances, and any changes in salary or job status. Generating accurate reports is easy with a comprehensive payroll automation tool that consolidates fragmented data sources, and can keep track of employee payments and deductions.

Keeping up with ever-changing tax laws & Compliance Laws

In Lesotho, tax laws and compliance regulations can change frequently, presenting a significant challenge for global employers. Monitoring updates to federal, state, and local tax codes is crucial to avoid non-compliance and costly penalties, but requires significant time and resources. Partnering with local experts or a reputable global HR platform is an effective way to maintain compliance. These services can help employers stay compliant with evolving regulations while freeing up time for more strategic work.

Consolidating Multi-Vendor Payroll Analytics

Managing payroll across multiple vendors often leads to fragmented data and inefficiencies, making it difficult to consolidate analytics. These challenges can hinder decision-making, especially when trying to gain a clear view of workforce costs and trends. To address this, organizations can invest in a centralized payroll management system that unifies data from multiple vendors. A consolidated platform simplifies payroll tracking, ensures data accuracy, and provides actionable insights into payroll expenditures.

Integrating Multiple HR & Payroll Systems

Global companies are prone to using multiple HR or payroll systems across regions, which can easily lead to fragmented payroll data, increasing the risk of delays and errors in employee compensation. To combat this, seamless integration between payroll and other systems is critical.

Payroll management systems that connect with existing HR and financial platforms can help streamline workflows by reducing manual inputs and ensuring that all departments operate with up-to-date, accurate information. In turn, this helps guarantee on-time, accurate payroll, boosting employee satisfaction.

How Playroll Can Streamline Payroll & Taxes In Lesotho

Expanding globally is an exciting milestone for any company, but it comes coupled with complex payroll challenges. It doesn’t have to be complicated. At Playroll, our easy-to-implement global payroll management software combines automation with hands-on support to make global payroll truly simple. Here's how Playroll helps:

Multi-Vendor Integration: Our platform syncs seamlessly with your providers and in-house systems to unify global payroll services in one platform.
Standardize Payroll Processes: Unify your operations in one dashboard to ensure payroll is running smoothly globally, with advanced approval flows and reports.
Improve Governance & Compliance: Improve compliance by centralizing all your compliance tasks and processes. Easily track your payment obligations, with digitized audit trails.
Advanced Reporting: Access and configure your data, your way, with a comprehensive suite of payroll analytics and reporting tools.

Disclaimer

THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL OR TAX ADVICE. You should always consult with and rely on your own legal and/or tax advisor(s). Playroll does not provide legal or tax advice. The information is general and not tailored to a specific company or workforce and does not reflect Playroll’s product delivery in any given jurisdiction. Playroll makes no representations or warranties concerning the accuracy, completeness, or timeliness of this information and shall have no liability arising out of or in connection with it, including any loss caused by use of, or reliance on, the information.

ABOUT THE AUTHOR