Lesson Notes By Weeks and Term v5 - Grade 11

Lesson Video

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Performance objectives

• Calculate Gross Salary, Deductions, and Net Salary.
• Interpret a payslip's main components.
• Calculate taxable income and income tax using tax tables.
• Explain the purpose of UIF.
• Apply these concepts to solve real-world financial problems.

Lesson summary

This week, we delve into the critical aspects of personal finance: understanding tax, Unemployment Insurance Fund (UIF), and how these elements impact your salary. This is not just theoretical knowledge; it's about empowering you to understand your payslip, manage your finances responsibly, and contribute to the economic well-being of South Africa. Understanding these concepts will help you make informed decisions about your career and financial future, particularly when you start earning an income. Many young South Africans are unaware of their rights and responsibilities as taxpayers and employees, which can lead to financial difficulties and exploitation.

Lesson notes

2. 1. Gross Salary The Gross Salary is the total amount of money you earn before any deductions are made. It's the initial amount stated in your employment contract, usually expressed as a monthly or annual figure.

Example: If your employment contract states a monthly salary of R10,000, then your gross salary is R10,000 per month. 2.

2. Deductions Deductions are amounts subtracted from your gross salary.

Common deductions in South Africa include: Pay-As-You-Earn (PAYE): This is income tax deducted by your employer on behalf of the South African Revenue Service (SARS). It contributes to funding government services like healthcare, education, and infrastructure.

Unemployment Insurance Fund (UIF): This provides temporary financial assistance to workers who become unemployed, are ill, or take maternity leave.

Pension/Provident Fund Contributions: Contributions to your retirement savings.

Medical Aid Contributions: Payments towards your medical insurance. We will focus on PAYE and UIF calculations for this lesson. 2.

3. Net Salary The Net Salary is the amount of money you receive after all deductions have been subtracted from your gross salary. This is the "take-home pay" that you can spend.

Formula: Net Salary = Gross Salary - Total Deductions 2.

4. Understanding UIF The Unemployment Insurance Fund (UIF) provides short-term relief to workers who qualify for benefits. Both employers and employees contribute to the UI

F. Employee Contribution: Employees contribute 1% of their gross salary to UI

F. Employer Contribution: Employers also contribute 1% of the employee's gross salary to UI

F. Calculation: To calculate the UIF deduction, multiply the gross salary by 1% (or 0.01). There is an upper earnings threshold for UIF contributions; this means contributions are only calculated on earnings up to a certain amount. As of 2024, this threshold is around R17,712 per month. If your gross salary exceeds this threshold, your UIF contribution will be calculated based on R17,

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2. Example: If an employee earns R10,000 per month, the UIF deduction is R10,000 0.01 = R

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0. If an employee earns R20,000 per month, the UIF deduction is R17,712 0.01 = R177.12. 2.

5. Understanding PAYE (Income Tax) PAYE (Pay-As-You-Earn) is the income tax that is deducted from your salary each month. The amount of PAYE depends on your taxable income and the income tax brackets for the current tax year.

Calculating Taxable Income: Taxable income is usually calculated by subtracting allowable deductions (such as pension fund contributions up to a certain limit) from your gross income. For simplicity, in many basic salary calculations, we assume the gross salary is the taxable income.

Using Tax Tables: SARS (South African Revenue Service) publishes tax tables each year. These tables show the income tax rates for different income brackets. The tax rates are progressive, meaning that higher income earners pay a higher percentage of their income in tax. Example of a Simplified Tax Table (Hypothetical - always refer to the current SARS tax tables): | Taxable Income Bracket | Tax Rate | | ----------------------- | -------- | | R0 - R95,750 | 18% | | R95,751 - R192,790 | 26% | | R192,791 - R302,600 | 31% | Tax Rebates: SARS provides tax rebates to reduce the amount of tax you pay. The primary rebate is available to all individual taxpayers. There are also secondary and tertiary rebates for taxpayers above certain ages. Rebates reduce your tax liability directly.

Example (Hypothetical): Assume the primary rebate is R16,

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5. Calculating PAYE (Step-by-Step): Determine your Taxable Income: As stated above, often we assume gross salary is the taxable income for simplicity.

Use the Tax Table: Find the income bracket that your taxable income falls into.

Calculate the Tax: Calculate the tax payable based on the tax rate for that bracket.

Subtract Rebates: Subtract any applicable rebates (primary, secondary, tertiary) from the calculated tax amount.

PAYE: The resulting amount is the PAYE deduction for the year. Divide this by 12 to get the monthly PAYE deduction.

Worked example

Let's say a person earns a gross salary of R15,000 per month and we assume this is also their taxable income per month (R180,000 annually). Assume the simplified tax table above and a primary rebate of R16,

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5. Annual Taxable Income: R15,000/month * 12 months = R180,000

Tax Bracket: R180,000 falls into the second bracket: R95,751 - R192,790 (Tax Rate: 26%)

Annual Tax Calculation (before rebate): First R95,750 is taxed at 18%: R95,750 0.18 = R17,

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5. The rest of the income (R180,000 - R95,750 = R84,250) is taxed at 26%: R84,250 0.26 = R21,

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5. Total tax before rebate: R17,235 + R21,905 = R39,040

Subtract Rebate: R39,040 - R16,425 = R22,615

Monthly PAYE: R22,615 / 12 = R1,884.58 (rounded to the nearest cent)

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6. Putting it all Together

A typical payslip will show the following:

Gross Salary

Deductions: PAYE, UIF, Medical Aid (if applicable), Pension/Provident Fund (if applicable)

Net Salary

Guided Practice (With Solutions)

Question 1:

Zanele earns a gross salary of R8,000 per month. Calculate her UIF deduction for the month.