COVID-19 has been detrimental to the world in many aspects and what started off as a public health crisis quickly evolved into an international pandemic that caused havoc on the global economy and financial markets. In such harsh economic circumstances, every cent counts. Many organisational employee wellness programmes were introduced at the onset of the pandemic with some focus placed on managing your finances and smart saving. Employees were encouraged to budget, manage their debt, and credit scores and save money where they could. The reality is that many people do not know how to interpret their payslip, which legislation is linked to salary deductions and to whom these deductions are paid.
Unpacking the typical payslip suitcase
The first step to counting your Rands and cents and making smart financial decisions is understanding your income and overall financial position.
An employee and employer agree to a salary to be paid in exchange for the employee’s hours worked. This is referred to as a gross salary which is earned before deductions, bonuses, or commission to be added.
Employee & employer salary deductions are governed and regulated by Section 34 of the South African Basic Conditions of Employment Act No 75 of 1997 (BCEA). The general application of employer salary deductions is simply that an employer is only permitted to make deductions from an employee’s salary if there is a written agreement in place between both parties. This written agreement is referred to as the Employment Contract.
Compulsory Deductions
Compulsory deductions, governed by South African Legislation, off any employee’s salary include Tax, referred to as Pay as You Earn (PAYE) and Unemployment Insurance Fund (UIF).
“Nothing is certain except death and taxes” – Benjamin Franklin, 1789. Thus, you P.A.Y.E
Employers are expected by law to deduct the appropriate tax amount from an employee’s salary and an employee is expected by law to comply with the deduction of taxes and the payment thereof to the respective tax authority, the South African Revenue Service (SARS).
Another deduction which is compulsory is the Unemployment Insurance Fund contribution which is paid to the Department of Labour. UIF is a short-term financial assistance scheme provisioned for employees who become unemployed, fall ill or are on maternity leave. When an employee dies, their dependents may claim financial assistance from the UIF.
It is the responsibility of the employee to review the IRP5 certificate issued at the end of the financial tax year by their employer, to ensure that all PAYE Taxes and UIF deductions made during the year were successfully paid to SARS and the Department of Labour, respectively. It is a criminal offence to omit paying tax and according to the SARS website “Taxpayers, both individuals and businesses, are required to be fully tax compliant through on-time submission of returns and payments”
Emoluments Attachment Orders (EOA): The Notorious Garnishee Orders
These deductions are made by the order of a creditor who has approached the courts to demand that an employer deduct money from an employee’s salary to reconcile debt. Until the debt is reconciled the employee’s salary will be garnished and reissued when moving jobs. According to the Courts of Law Amendment Act (7 of 2017) which came into effect in July 2017, Garnishee orders are limited to 25% of an employee’s basic salary to ensure the employee has enough money each month for living expenses.
Voluntary Deductions
These deductions are usually made in agreement between an employer and an employee.
Examples of such deductions are:
Pension fund contributions; medical aid contributions; membership fees to affiliations or trade unions; retirement annuities and loans from your employer. The employer may deduct cell phone and vehicle expenditure if these company assets have been provided to the employee with the agreement that expenses accumulated on these assets are paid by the employee.
Once all deductions are made on the employee’s salary, the amount remaining is referred to as the net salary.
Understanding your income and overall financial position allows you to make better financial decisions ultimately leading to financial resilience. COVID-19 has taught the world many lessons, a financial lesson to learn from the pandemic is to always be prepared, and In Case of Emergency (ICE) fund is a necessity where it is on a national level, for a business or even for the average citizen.
Look forward – to the future, post-COVID-19
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