PAYE, which stands for Pay As You Earn, is a withholding system often used by governments to collect income tax and social security (or equivalent) contributions directly from employees' earnings. Under PAYE, employers are responsible for deducting the appropriate amount from employees' gross salary each pay period and remitting it to the relevant tax authority. This ensures that tax liabilities are settled incrementally over the year, reducing the need for large payments at year-end and aiding in government cash flow.

For example, if an employee earns $3000 per month, the employer calculates tax based on applicable tax rates and deductions, then transfers the remaining post-tax amount to the employee. PAYE systems often require employers to file regular returns or reports detailing these deductions and payments. It can also incorporate other deductions like pension contributions or student loans.

Related terms such as 'Accruals' and 'Deferred Revenue' might also be involved in the accounting processes impacted by a PAYE system.