The payslip is one of those important documents in your life which is often forgotten until it's required. It's a useful document that breaks down your income and deductions. It's also your proof of employment. Some of the important uses for a payslip include:
- Applying for credit like a home loan or a phone contract
- Negotiating your package with a prospective employer
- Going into a rental agreement for a place to stay
This May being Worker's Month, we thought it would be useful to breakdown some things you may need to understand more fully about your payslip. Our advice come from Maya Fischer-French, a consumer journalist who is passionate about financial education in South Africa.
Deductions - When looking at deductions, it's important to note that personal/voluntary deductions cannot exceed 25% of your gross pay. Voluntary deductions include staff loans, donations to charities, gym fees and in some cases union fees. Compulsory deductions include tax and Unemployment Insurance Fund contributions. Deductions related to benefits, such as pension, medical aid, life cover and funeral cover and income protection, are usually voluntary but can sometimes be compulsory depending on your employer’s policy. Remember that these are not standard amounts in all industries and they can differ from company to company.
Basic pay - The rate agreed between you and your employer as your set pay, without any bonuses or overtime.
Cost to Company - This term refers to the total salary package of an employee. It is the pre-tax salary and includes all benefits the company is offering.
Gross pay - The amount that you actually earn before deductions from your salary.
Net pay - The amount that gets paid into your bank account. It is the amount that you will take home after deductions.
IRP5 - This is your tax certificate. It is issued to you at the end of each tax year detailing all employer/employee related incomes, deductions and related taxes. It is used by you specifically to complete your income tax return for a given year.
PAYE - This stands for "Pay As You Earn" and it is the type of income tax that you pay. Your employer will deduct PAYE from your salary on a monthly basis and pay it to SARS on your behalf. The amount of PAYE that you will contribute depends on how much you earn, and is calculated from tax tables issued annually by SARS. The South African Revenue Service, which is responsible for the collection of all taxes in South Africa.
UIF - This stands for "Unemployment Insurance Fund" and is another deduction from your salary that is paid by your employer on a monthly basis. All employees, as well as their employers, are liable for these contributions. As an employee you pay 1% of your total salary and your employer pays another 1% of your salary to the fund every month. If you become unemployed after contributing to the UIF, or your company does not pay for maternity leave, you will have the right to claim from the UIF.
Understanding your payslip is one of the first steps required on the journey to financial freedom. Knowing how much you earn, how much you are spending on items like medical aid and tax impacts your budget for other monthly expenses. Take the time today to go through your payslip and truly understand every line on it.