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Once a month employees across SA readily accept their payslip from their boss – then stash it away in their bag or briefcase.
If lucky, some employees may go as far as to file their payslip. But how many of us open our payslips, and work through it line for line? And how many understand it, and ask our employers to explain that which we don’t get?
According to Bev van Nijkerk, segment specialist, Young Professional Market at Sanlam Personal Finance, having the right attitude towards your payslip is essential in helping you become financially fit, especially if you’re in your first job.
“Your payslip is not only a piece of paper with sums on it. It is your first official step to financial freedom. It helps you work around a budget, and determines your available disposable income,” she says.
“So it’s vital for your budget planning, not just month to month, but over a 12-month period.”
As such, it is also important that you understand the terms reflected on your payslip.
“You must understand how much your company is paying you, and what your deductions amount to. Are these deductions the right options for you? If not, your financial adviser should be able to assist you,” Van Nijkerk says.
She offers a brief explanation for the main terms you’re likely to come across on your payslip.
l Cost-to-company – When a company offers you a job, it will usually quote your total cost to it to you, known as cost-to-company. This refers to the total package, and includes employee benefits (both your and the company’s contributions), medical aid and tax.
Van Nijkerk recommends that you ask for a breakdown of these costs first, before accepting.
“The cost-to-company may sound substantial, but you should ask what amount will be left in your pocket.”
l The deductions – The biggest deduction on your payslip is likely to be tax. You’re usually taxed on your regular earnings, your annual bonus and your fringe benefits (like a car or cellphone allowance).
The amount of tax you pay depends on the amount you earn. The first R63 500 you earn is not taxed. Thereafter you’re taxed according to which income tax bracket you qualify in.
“You need to understand the tax bracket you fall in,” Van Nijkerk says. “There are ways in which you can reduce your tax – by for example also taking out a retirement annuity. Sars will refund a portion of your contributions.”
Remember, the retirement annuity will be in addition to your pension or provident fund. These retirement vehicles offer good tax advantages – but you can only withdraw your funds once you turn 55.
Van Nijkerk says it’s important you know how much you are contributing to your pension savings, and how much your employer is.
A further deduction is your medical aid. The cover you choose depends on your situation.
“You need to find out what plan you’re on, and what cover you’re receiving. Ask yourself: is this the right plan for me?”
Further smaller deductions are likely to include a funeral plan, a payment to a union and a deduction to the unemployment insurance fund (UIF).
For UIF, your company must pay the total contribution of 2 percent of your salary – of which 1 percent will come out of your direct salary, and the other 1 percent will be contributed by the employer. UIF comes in handy if you were to be retrenched or go on maternity leave, as you can claim a percentage from the fund.
Van Nijkerk says firms do make mistakes, and it is your responsibility to make sure your salary and deductions are correct. Your payslip also shows how much your company values you, and whether you need to request more from your boss. “Your payslip essentially determines your worth to your employer. So if you feel your work is being undervalued, look at your payslip – it’ll give you your answer.”
l E-mail Van Nijkerk at Bev. vanNijkerk@sanlam.co.za.