Lesson Notes By Weeks and Term v5 - Grade 11

Lesson Video

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Performance objectives

• Calculate gross salary, deductions, and net salary.
• Explain the purpose of UIF.
• Interpret a standard payslip.
• Use SARS tax tables to calculate monthly tax.
• Solve problems related to income and expenses.

Lesson summary

This week, we delve into the crucial aspects of personal finance in South Africa: tax, Unemployment Insurance Fund (UIF), and salary calculations. Understanding these elements is vital for every working individual as they directly impact their take-home pay and their contribution to the nation's economy and social security. Many young South Africans enter the workforce without a clear grasp of how their salaries are calculated or what their rights and responsibilities are regarding tax and UIF. This lack of knowledge can lead to financial mismanagement, misunderstandings about their earnings, and difficulty navigating the tax system.

Lesson notes

2.1 Gross Salary: Gross salary refers to the total amount of money earned by an employee before any deductions are made. This includes basic salary, overtime pay, bonuses, allowances (e.g., transport allowance, housing allowance), and any other form of compensation. It is the figure upon which taxes and other deductions are calculated.

Example: Sipho's basic salary is R12,000 per month. He also receives a transport allowance of R500 and earned a bonus of R1,000 this month. His gross salary is R12,000 + R500 + R1,000 = R13,500. 2.2 Deductions: Deductions are amounts subtracted from the gross salary.

Common deductions in South Africa include: Pay-As-You-Earn (PAYE)

Tax: This is income tax deducted from an employee's salary and paid to SARS on their behalf. The amount of PAYE depends on the employee's annual income and the applicable tax brackets.

Unemployment Insurance Fund (UIF): This is a mandatory contribution that provides short-term financial relief to workers who become unemployed, are ill, or take maternity leave. Both the employer and employee contribute to the UI

F. Pension/Provident Fund Contributions: These are contributions to retirement savings plans.

Medical Aid Contributions: These are contributions to a medical insurance scheme.

Other Deductions: These can include loan repayments, union fees, or deductions for company benefits. 2.3 Net Salary (Take-Home Pay): Net salary is the amount of money an employee receives after all deductions have been subtracted from the gross salary. This is the actual money deposited into the employee's bank account.

Formula: Net Salary = Gross Salary - Total Deductions 2.4 Pay-As-You-Earn (PAYE)

Tax: PAYE is the method used by SARS to collect income tax from individuals. Employers are responsible for deducting PAYE from their employees' salaries and paying it over to SARS. The amount of PAYE deducted is based on the employee's taxable income and the SARS tax tables for the relevant tax year.

Understanding SARS Tax Tables: SARS provides annual tax tables that outline the tax brackets and rates. These tables are used to determine how much tax should be deducted from an employee's salary. To calculate PAYE, you need to know the employee's annual taxable income. Taxable income is usually gross income less certain allowable deductions (e.g., pension fund contributions up to a certain limit). Example (Illustrative - actual tax brackets change annually): Let's say the following tax brackets exist: R0 - R91,250: 18% R91,251 - R181,900: 26% R181,901 - R284,400: 31% An individual earns R150,000 per year. Tax on the first R91,250: R91,250 x 0.18 = R16,425 Tax on the amount above R91,250 (R150,000 - R91,250 = R58,750): R58,750 x 0.26 = R15,275 Total Annual Tax: R16,425 + R15,275 = R31,700 Monthly Tax (PAYE): R31,700 / 12 = R2,641.67 Important

Note: The actual tax brackets and rates change every tax year (March to February). Always refer to the latest SARS tax tables. SARS also provides rebates (tax credits) that reduce the overall tax burden. For example, there is a primary rebate for all taxpayers, and additional rebates for taxpayers over 65 and

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5. These rebates are factored into the final PAYE calculation. 2.5 Unemployment Insurance Fund (UIF): UIF provides temporary financial assistance to workers who have lost their jobs, are on maternity leave, or are ill. Both the employer and employee contribute 1% of the employee's gross salary to the UIF, up to a legislated earnings threshold. Currently (as of October 2023, this should be checked for updates), the maximum earnings on which UIF is calculated is R17,712 per month. This means that even if an employee earns more than R17,712 per month, the UIF contribution is still calculated on R17,

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2. Example: Sarah earns R20,000 per month. The UIF threshold is R17,

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2. Sarah's UIF Contribution: R17,712 x 0.01 = R177.12 Employer's UIF Contribution: R17,712 x 0.01 = R177.12 Total UIF Contribution: R177.12 + R177.12 = R354.24 If John earns R15,000, his UIF contribution would be R15,000 x 0.01 = R150. 2.6 Understanding a Payslip: A payslip is a document provided to an employee that details their earnings and deductions for a specific pay period.

Key components include: Employee Information: Name, employee number, etc.

Pay Period: The date range covered by the payslip.

Earnings: Gross salary, overtime pay, bonuses, allowances.

Deductions: PAYE, UIF, pension/provident fund, medical aid, etc.

Employer Contributions: Employer's contribution to UIF, pension fund, medical aid, etc.

Net Salary: The amount paid to the employee.

Year-to-Date (YTD)

Totals: Cumulative amounts for earnings and deductions since the beginning of the tax year. Guided Practice (With Solutions)

Question 1: Thabo earns a basic salary of R10,000 per month. He also receives a housing allowance of R1,

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0. Calculate his gross salary.