Lesson Notes By Weeks and Term v5 - Grade 11

Lesson Video

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Performance objectives

• Calculate Gross Salary from hourly rates and overtime.
• Calculate statutory deductions like PAYE tax and UIF.
• Determine Net Salary (take-home pay).
• Identify the different parts of a payslip.
• Understand the purpose of tax and UIF in South Africa.

Lesson summary

This week, we delve into the crucial area of personal finance, focusing on tax, Unemployment Insurance Fund (UIF), and how these elements affect your salary. Understanding these concepts is essential for every South African. As future employees, and even potentially employers, you need to grasp how taxes are calculated, what UIF provides, and how your "take-home" pay (net salary) is determined. This knowledge empowers you to make informed financial decisions, understand your payslip, and hold employers accountable for accurate deductions and payments. Ignoring this knowledge can leave you vulnerable to exploitation and financial mismanagement.

Lesson notes

2.1 Gross Salary Gross salary is the total amount of money earned before any deductions are made. It includes your basic salary, overtime pay, allowances (e.g., travel allowance, housing allowance), and any bonuses.

Basic Salary: The fixed amount you earn for your normal working hours.

Overtime Pay: Payment for hours worked beyond your regular working hours. South African labour law typically requires overtime pay to be 1.5 times the normal hourly rate on weekdays and Saturdays and double the normal hourly rate on Sundays and public holidays.

Allowances: Payments made by the employer to cover specific expenses related to the employee's work. These may be taxable or non-taxable, depending on the allowance type and SARS regulations.

Bonuses: Additional payments made to employees, often based on performance or company profits. Bonuses are taxable.

Example 1: Sipho works as a cashier at a supermarket. His basic salary is R5,000 per month. He also receives a transport allowance of R500 per month. Last month, he worked 10 hours of overtime, paid at 1.5 times his normal hourly rate. His normal working hours are 40 hours per week for 4 weeks per month (160 hours). Calculate Sipho's gross salary for last month.

Solution: Calculate hourly rate: R5,000 / 160 hours = R31.25 per hour Calculate overtime rate: R31.25 x 1.5 = R46.88 per hour Calculate overtime pay: 10 hours x R46.88 = R468.80 Calculate gross salary: R5,000 (basic) + R500 (allowance) + R468.80 (overtime) = R5,968.80 Therefore, Sipho's gross salary for last month is R5,968.80. 2.2 Statutory Deductions: PAYE and UIF Statutory deductions are mandatory deductions that employers must make from an employee's gross salary. The two most common statutory deductions in South Africa are: PAYE (Pay-As-You-Earn)

Tax: This is income tax deducted from your salary and paid to the South African Revenue Service (SARS) on your behalf. The amount of PAYE you pay depends on your taxable income (gross salary minus certain allowable deductions) and the annual tax tables published by SAR

S. UIF (Unemployment Insurance Fund): This fund provides short-term financial assistance to workers who become unemployed, are ill, or take maternity leave. Both the employee and the employer contribute to UIF. The employee contribution is 1% of their gross salary, up to a certain earnings threshold. The employer also contributes 1%.

PAYE Calculation: PAYE is calculated based on annual taxable income using tax tables. The tax tables are structured into different income brackets, each with a specific tax rate. Because we are doing weekly calculations the annual values on the SARS tables must be converted to monthly.

Example 2: Thandi earns a gross monthly salary of R12,

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0. Use the 2024/2025 tax tables (simplified version shown below) to calculate her monthly PAY

E. Simplified 2024/2025 Tax Table (Monthly): | Taxable Income (R) | Rate of Tax (R) | | ------------------------ | --------------- | | 0 - 8,333 | 0% | | 8,334 - 14,242 | 18% of taxable income above R8,333 | | 14,243 - 22,500 | R1,064.16 + 26% of taxable income above R14,242 | | Above 22,500 | Complex formula | Solution: Thandi's income falls into the second tax bracket (R8,334 - R14,242). Calculate the taxable income above R8,333: R12,000 - R8,333 = R3,667 Calculate 18% of this amount: 0.18 x R3,667 = R660.06 Therefore, Thandi's monthly PAYE is R660.06 UIF Calculation: The employee contributes 1% of their gross salary to UIF, up to a certain earnings threshold. As of 2024, this threshold is R17,712 per month. If an employee earns more than this threshold, they only contribute 1% of R17,

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2. Example 3: Calculate the UIF contribution for: a) Sipho (from Example 1), who earns R5,968.80 per month. b) David, who earns R20,000 per month.

Solution: a)

Sipho's UIF contribution: 1% of R5,968.80 = 0.01 x R5,968.80 = R59.69 b)

David's UIF contribution: Since R20,000 is above the threshold of R17,712, he contributes 1% of R17,712 = 0.01 x R17,712 = R177.12 2.3 Net Salary Net salary is the amount of money you receive in your bank account after all deductions have been made from your gross salary.

Formula: Net Salary = Gross Salary - Statutory Deductions (PAYE + UIF) - Other Deductions (e.g., medical aid, pension fund)

Example 4: Using the information from Examples 1, 2, and 3, calculate Thandi's net salary. Assume she also contributes R800 to a medical aid fund.

Gross Salary: R12,000 PAYE: R660.06 UIF: 1% of R12,000 = R120 Medical Aid: R800 Solution: Net Salary = R12,000 - R660.06 - R120 - R800 = R10,419.94 2.4 Interpreting a Payslip A payslip is a document provided by the employer to the employee, detailing their earnings and deductions for a specific pay period.

A typical payslip includes: Employee Information: Name, employee number, ID number.

Employer Information: Company name, address.

Pay Period: Date range covered by the payslip.

Earnings: Basic salary, overtime, allowances, bonuses.