Lesson Notes By Weeks and Term v5 - Grade 11
Finance: tax, UIF and salary calculations – Week 6 focus
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Finance: tax, UIF and salary calculations – Week 6 focus
Download the Lessonotes Mobile South Africa app for faster lesson access on Android and iPhone.
Subject: Mathematical Literacy
Class: Grade 11
Term: 2nd Term
Week: 6
Theme: General lesson support
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This week, we delve into the crucial area of personal finance, specifically focusing on tax, Unemployment Insurance Fund (UIF), and salary calculations. Understanding these concepts is vital for every South African, as it empowers you to manage your money effectively, understand your rights as an employee, and plan for your financial future. Whether you plan to work after school, start your own business, or pursue further education, grasping these financial basics is essential for navigating the South African economy. This knowledge will also equip you to interpret payslips accurately and identify any discrepancies, ensuring you receive your rightful compensation.
2.1 Gross Salary, Deductions, and Net Salary Gross Salary: This is your total earnings before any deductions are made. It's the amount agreed upon in your employment contract or the total amount you earned during a specific period (e.g., monthly, weekly).
Deductions: These are amounts subtracted from your gross salary.
Common deductions include: PAYE (Pay As You Earn)
Tax: Income tax deducted by your employer and paid to SARS (South African Revenue Service) on your behalf.
UIF (Unemployment Insurance Fund): A mandatory contribution that provides temporary financial relief to workers who become unemployed.
Pension Fund/Retirement Annuity: Contributions to a retirement savings plan.
Medical Aid: Contributions to a medical insurance scheme.
Other Deductions: May include union fees, loan repayments, etc.
Net Salary: This is your "take-home pay"—the amount of money you actually receive after all deductions have been made. Net Salary = Gross Salary - Total Deductions Example 1: Thando earns a gross salary of R8,000 per month.
Her deductions are as follows: PAYE: R800, UIF: R80, Medical Aid: R
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0. Calculate her net salary.
Solution: Total Deductions = R800 + R80 + R500 = R1380 Net Salary = R8000 - R1380 = R6620 Thando's net salary is R6620. 2.2 Understanding PAYE (Pay As You Earn) Tax PAYE is the income tax deducted from your salary by your employer and paid to SARS on your behalf. The amount of PAYE you pay depends on your annual taxable income and the current tax tables issued by SARS. These tables outline the income tax brackets and the corresponding tax rates. SARS also provides rebates (tax discounts) to reduce the overall tax burden.
Key Terms: Taxable Income: Your gross income less certain deductions allowed by SARS (e.g., some retirement contributions). For simplicity in this lesson, we will assume taxable income is equal to gross income unless otherwise stated.
Tax Brackets: Income ranges to which different tax rates apply.
Tax Rate: The percentage at which income within a specific tax bracket is taxed.
Rebates: Fixed amounts that can be deducted from the total tax payable. Primary, secondary (for individuals 65 and older), and tertiary (for individuals 75 and older) rebates exist. Simplified Tax Calculation Process (Using Assumed 2024 Tax Tables - Important: Always Use the Latest SARS Tax Tables): Let's assume the following simplified 2024 tax table (in reality, tax tables are more complex and MUST be used when calculating actual PAYE): | Taxable Income (R) | Tax Rate | |----------------------|----------| | 0 - 95,750 | 18% | | 95,751 - 192,000 | 26% | | 192,001 - 299,700 | 31% | And let's assume a primary rebate of R16,425 for the year.
Example 2: Sipho earns a taxable income of R15,000 per month (R180,000 per year). Calculate his annual PAYE tax and monthly PAYE tax.
Solution: Annual Taxable Income: R180,000 Tax Calculation: Income between R95,751 and R180,000 (R180,000 - R95,750 = R84,250) is taxed at 26%.
Tax on this portion: R84,250 0.26 = R21,905 Income between R0 and R95,750 is taxed at 18%.
Tax on this portion: R95,750 0.18 = R17,235 Total tax before rebate: R21,905 + R17,235 = R39,140 Subtract primary rebate: R39,140 - R16,425 = R22,715 Annual PAYE Tax: R22,715 Monthly PAYE Tax: R22,715 / 12 = R1892.92 (rounded to the nearest cent) Sipho's monthly PAYE tax is approximately R1892.
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2. Important
Note: Always use the official and latest SARS tax tables for accurate calculations. The example above is for illustrative purposes only and may not reflect the actual tax rates. 2.3 Understanding UIF (Unemployment Insurance Fund) The UIF provides short-term financial relief to eligible workers who become unemployed, are on maternity leave, or are ill. Both employees and employers contribute to the UI
F. Contribution Rate: The current UIF contribution is 1% of the employee's gross salary, up to a certain earnings threshold. The employer also contributes an equal amount (1%). The employer is responsible for deducting the employee's contribution and paying it, along with their own contribution, to the UI
F. Earnings Threshold: There is a maximum earnings threshold for UIF contributions. If an employee earns above this threshold, the UIF contribution is calculated based on the threshold amount, not their actual salary.
Important: You need to find the current earnings threshold on the Department of Labour's official website. For this example, let's assume the threshold is R17,712 per month.
Example 3: Nomusa earns a gross salary of R12,000 per month. Calculate her UIF contribution and her employer's UIF contribution.
Solution: Nomusa's UIF Contribution: R12,000 0.01 = R120 Employer's UIF Contribution: R12,000 0.01 = R120 Both Nomusa and her employer contribute R120 each to the UI
F. Example 4: John earns a gross salary of R20,000 per month. Using the assumed threshold of R17,712 calculate his UIF contribution and his employer's contribution.