Lesson Notes By Weeks and Term v5 - Grade 11

Lesson Video

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Performance objectives

• Calculate Gross Salary
• Calculate Taxable Income
• Calculate PAYE Tax using tax tables
• Calculate UIF Contributions
• Calculate Net Salary

Lesson summary

This week, we delve into the critical area of personal finance, specifically focusing on tax, UIF (Unemployment Insurance Fund), and salary calculations. Understanding these concepts is not merely academic; it's essential for managing your finances responsibly, comprehending your payslip, and participating actively in the South African economy. As future employees and taxpayers, you'll be directly impacted by these calculations. This knowledge empowers you to make informed decisions about your earnings and financial obligations. In South Africa, these deductions are crucial for funding social safety nets and public services.

Lesson notes

2.1 Gross Salary: Gross salary is the total amount of money an employee earns before any deductions. It can be calculated based on hourly wages, a monthly salary, or commission.

Hourly Wage: Gross Salary = Hourly Rate x Number of Hours Worked Monthly Salary: Gross Salary is the stated monthly amount.

Commission: Gross Salary = Base Salary + Commission Earned 2.2 Taxable Income: Taxable income is the amount of your income that is subject to income tax. In South Africa, certain deductions, such as pension fund contributions (within limits), can be deducted from your gross income to arrive at taxable income. We will assume, for simplicity in this week's lesson, that there are no deductions for now and that Taxable Income is equal to Gross Income.

However, it's crucial to remember this is a simplification. 2.3 PAYE (Pay As You Earn)

Tax: PAYE is the income tax deducted from an employee's salary each month and paid to SARS (South African Revenue Service) on their behalf. The amount of PAYE depends on the individual's taxable income and the latest SARS tax tables.

Understanding SARS Tax Tables: SARS provides annual tax tables that specify the income tax brackets and rates. These tables typically look like this (EXAMPLE - always use the CURRENT YEAR's official table!): | Taxable Income (R) | Rate of Tax | |-----------------------|-------------| | 0 - 95,750 | 18% | | 95,751 - 192,750 | 18% of taxable income above R95,750 + R17,235 | | 192,751 - 296,500 | 26% of taxable income above R192,750 + R34,735 | | 296,501 - 410,450 | 31% of taxable income above R296,500 + R61,820 | | 410,451 - 555,600 | 36% of taxable income above R410,450 + R97,225 | | 555,601 - 701,300 | 39% of taxable income above R555,600 + R149,471 | | 701,301 - 889,700 | 41% of taxable income above R701,300 + R206,038 | | 889,701 - 1,817,000 | 45% of taxable income above R889,700 + R282,532 | | 1,817,001+ | 45% | Tax Rebates: SARS also provides tax rebates, which are amounts that can be deducted from the calculated tax liability. Common rebates include the primary, secondary (for individuals 65 and older), and tertiary (for individuals 75 and older) rebates.

PAYE Calculation Steps: Determine Taxable Income: As discussed earlier, this week we will assume this is equivalent to the Gross Salary.

Find the Appropriate Tax Bracket: Locate the income bracket in the tax table that includes the taxable income.

Calculate the Tax: Apply the corresponding tax rate to the portion of the taxable income that falls within that bracket and add any fixed amount associated with that bracket (as shown in the table).

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

Divide by 12: Divide the annual tax amount (after rebates) by 12 to get the monthly PAYE amount. 2.4 UIF (Unemployment Insurance Fund): UIF provides short-term financial relief to workers who become unemployed, are ill, or are on maternity, adoption, or parental leave. Both employees and employers contribute to UI

F. Contribution Rate: The current UIF contribution rate is 1% of the employee's gross salary, up to a certain earnings threshold (updated annually). The employer also contributes an equal amount. We will use an earnings threshold of R17,712 per month for calculations. This limit means that even if you earn more, the UIF is calculated on this maximum amount.

Employee Contribution: Employee UIF = 1% of Gross Salary (up to the threshold).

Employer Contribution: Employer UIF = 1% of Gross Salary (up to the threshold). 2.5 Net Salary: Net salary is the amount of money an employee receives after all deductions have been made from their gross salary. Net Salary = Gross Salary - PAYE - Employee UIF - Other Deductions (if any)

Worked example

Example 1: Hourly Wage

A security guard earns R45 per hour and works 160 hours per month.

Gross Salary: R45/hour 160 hours = R7200

UIF: 1% of R7200 = R72

Example 2: Monthly Salary (Tax Calculation)