Lesson Notes By Weeks and Term v5 - Grade 11

Lesson Video

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Performance objectives

• Calculate gross salary, deductions (PAYE & UIF), and net salary.
• Interpret a payslip.
• Calculate PAYE tax using tax tables and rebates.
• Explain the purpose of UIF.
• Solve real-world financial problems.

Lesson summary

This week, we delve into the crucial area of personal finance, specifically focusing on tax, Unemployment Insurance Fund (UIF), and salary calculations within the South African context. Understanding these concepts is paramount for every South African, as it directly impacts our financial well-being and our understanding of our rights and responsibilities as contributing members of society. Many learners will enter the workforce after school, and this knowledge will empower them to manage their finances effectively, understand their payslips, and avoid being exploited.

Lesson notes

2. 1. Gross Salary, Deductions, and Net Salary Gross Salary: This is the total amount of money earned before any deductions are made. It's the headline figure you see advertised for a job.

Deductions: These are amounts subtracted from your gross salary.

Common deductions include: PAYE (Pay As You Earn)

Tax: This is income tax deducted by your employer and paid to the South African Revenue Service (SARS) on your behalf.

UIF (Unemployment Insurance Fund): This provides short-term financial relief to workers who lose their jobs or become unemployed. Both the employee and employer contribute to UI

F. Pension/Provident Fund: Contributions towards your retirement savings.

Medical Aid: Payments towards your medical insurance.

Net Salary: This is the amount of money you actually receive in your bank account after all deductions have been made.

It is calculated as: Net Salary = Gross Salary - Total Deductions 2.

2. PAYE (Pay As You Earn) Tax PAYE is a system where income tax is deducted from your salary throughout the year. The amount of PAYE deducted depends on your taxable income and the prevailing tax rates.

Taxable Income: This is the portion of your income that is subject to tax. It's usually your gross income less certain allowable deductions, such as pension fund contributions (up to a certain limit).

Tax Brackets: The South African tax system uses a progressive tax system, meaning that higher earners pay a higher percentage of their income in tax. Different income levels fall into different tax brackets, each with its own tax rate. SARS releases these tables annually.

Tax Rebates: These are fixed amounts that are deducted from your total tax liability.

Common rebates include: Primary Rebate: Available to all taxpayers.

Secondary Rebate: Available to taxpayers aged 65 and older.

Tertiary Rebate: Available to taxpayers aged 75 and older.

Calculating PAYE: Determine your taxable income: Gross income - Allowable deductions (e.g., pension fund contributions). Use the tax tables to determine the tax liability for your taxable income bracket. This will either be a fixed amount plus a percentage of the income above a certain threshold, or simply a percentage of the taxable income if you're in the lowest bracket. Subtract any applicable tax rebates from your tax liability. The result is the amount of PAYE tax you owe.

Example: Let's say Sipho earns a gross monthly salary of R15,

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0. He contributes R500 per month to a pension fund. Assume the following simplified (and potentially outdated – always use the official SARS tables) tax table and rebates: | Taxable Income (R) | Rate of Tax | |---------------------|-------------| | 0 - 8,000 | 18% | | 8,001 - 20,000 | 18% of income above 8,000 | Primary Rebate: R1,500 per month (R18,000 per year)

Step 1: Calculate Taxable Income Taxable Income = Gross Salary - Pension Contribution Taxable Income = R15,000 - R500 = R14,500 Step 2: Determine Tax Liability from Tax Table Since R14,500 falls in the second bracket, we calculate the tax as follows: Tax = 18% of (R14,500 - R8,000) Tax = 0.18 * R6,500 = R1,170 Step 3: Subtract Tax Rebates Monthly Rebate = R1,500 PAYE Tax = R1,170 - R1,500 = -R330 Because the rebate is larger than the calculated tax, in this scenario Sipho would technically have no PAYE tax due. In practice, with a more detailed tax table and deductions, he most certainly would owe tax. This is an illustrative example. 2.

3. UIF (Unemployment Insurance Fund) UIF provides financial assistance to workers who become unemployed, are ill, or are on maternity/paternity leave.

Contributions: Both the employer and employee contribute 1% of the employee's gross salary to UIF, up to a certain earnings threshold (currently R17,712 per month). If the employee's gross salary exceeds the threshold, the UIF contribution is calculated based on the threshold amount, not the actual salary.

Benefits: UIF provides various benefits, including unemployment benefits, illness benefits, maternity benefits, adoption benefits, and dependant benefits.

Eligibility: To claim UIF benefits, you must meet certain criteria, such as having contributed to UIF while employed and being unemployed due to no fault of your own.

Example: Thando earns a gross monthly salary of R10,

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0. Employee UIF Contribution: 1% of R10,000 = R100 Employer UIF Contribution: 1% of R10,000 = R100 Total UIF Contribution: R200 (R100 from employee + R100 from employer) If John earns a gross monthly salary of R20,

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0. The UIF threshold is R17,

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2. Employee UIF Contribution: 1% of R17,712 = R177.12 Employer UIF Contribution: 1% of R17,712 = R177.12 2.

4. Understanding a Payslip A payslip is a document provided by your employer that details your earnings and deductions for a specific period.

Key components include: Employee Information: Your name, employee number, and ID number.

Employer Information: The company's name and address.

Pay Period: The dates covered by the payslip.