Payslips, deductions and tax

Understanding Payslips

A payslip is a document that details an employee's earnings, deductions, and net pay. It helps employees understand how their salary is calculated and what deductions are made.

Key Components of a Payslip

Income:
- Basic Salary – The fixed amount an employee earns before deductions.
- Overtime Pay – Extra earnings for working beyond normal hours.
- Total Income = Basic Salary + Overtime + Any other earnings.
Deductions:
- PAYE (Pay-As-You-Earn) Tax – A tax deducted from salary based on earnings.
- Medical Aid Contributions – Payments towards a medical scheme.
- UIF (Unemployment Insurance Fund) – A deduction to provide short-term financial relief for unemployed workers.
- Pension Fund Contributions – A portion of salary saved for retirement.
- Total Deductions = Sum of all deductions.
Net Pay:
- Net Pay (Take-Home Salary) = Total Income - Total Deductions

Taxation in South Africa

Taxes are compulsory payments made to the government. Employees pay tax based on their income level.

PAYE (Pay-As-You-Earn)

A progressive tax system is used: Higher earners pay a higher percentage of their salary in tax.
Tax Rebates – Amounts deducted from total tax liability, reducing the overall tax burden.

How to Calculate PAYE Tax

Identify the annual taxable income (Monthly salary × 12).
Use the tax brackets to find the applicable tax rate.
Apply the tax formula:

Find the base tax amount for the income bracket.
Calculate the additional tax percentage for the remaining amount in that bracket.
Subtract the applicable tax rebate to get the final PAYE amount.

3. VAT (Value-Added Tax)

VAT is a 14% or 15% tax added to goods and services in South Africa.
Some items like basic food products are VAT-exempt.
To find the VAT-exclusive price from a VAT-inclusive amount:
- Use the formula: Price excluding VAT = Total Price ÷ 1.14 (or 1.15)
To add VAT to a price:
- Price including VAT = Original Price × 1.14 (or 1.15)

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Worked Example

Example: Calculating PAYE Tax

An employee earns R19,010 per month.
Annual salary = R19,010 × 12 = R228,120
Using tax brackets:

First R160,000 is taxed at 18%: R160,000 × 18% = R28,800
Remaining R68,120 is taxed at 25%: R68,120 × 25% = R17,030
Total tax before rebate = R28,800 + R17,030 = R45,830
Less rebate of R11,440: R45,830 - R11,440 = R34,390
PAYE deduction = R34,390 ÷ 12 = R2,865.83 per month Example: VAT Calculation

A jacket costs R749. To find the price excluding VAT:

VAT = 14% (Use 1.14 in the formula)
Price before VAT = R749 ÷ 1.14 = R657.02
The original price before VAT was R657.02.

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Activity 12: Payslips, deductions and tax

Lucinda Adams receives a payslip with the following details:

Basic salary: R15 780
Overtime: R3 230
Deductions:
PAYE (Tax): R2 865,83
Medical Aid: R1 420
UIF: R157,80
Pension Fund: R1 065

a) Calculating Total Income and Net Pay

\text{Total Income} = R15 780 + R3 230 = R19 010

\text{Total Deductions} = R2 865,83 + R1 420 + R157,80 + R1 065 = R5 508,63

\text{Net Pay} = R19 010 - R5 508,63 = R13 501,37

3. Calculating PAYE Tax

Using the tax table for incomes between R160 000 – R250 000:

\text{Annual Salary} = R19 010 \times 12 = R228 120

\text{Tax Payable} = R28 800 + 25\% \times (R228 120 - R160 000)

= R28 800 + (25\% \times R68 120) = R28 800 + R17 030 = R45 830

Subtract the primary rebate of R11 440:

\text{Annual PAYE} = R45 830 - R11 440 = R34 390

\text{Monthly PAYE} = R34 390 \div 12 = R2 865,83

The payslip deduction for PAYE is correct.

4. VAT Discount for Employees

Lucinda wants to buy a coat priced at R749.

The price includes 14% VAT.
As an employee, she gets a VAT-free price.

a) Calculating VAT-Free Price

\text{VAT-free Price} = R749 \div 1.14 = R657,02

She will pay R657,02 instead of R749.

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Summary

Payslips show salary, deductions, and net pay.
Deductions include PAYE, UIF, pension, and medical aid.
PAYE tax is calculated using income brackets and rebates.
VAT is added to goods and services at 14% or 15%.
To remove VAT, divide by 1.14 or 1.15.
To add VAT, multiply by 1.14 or 1.15.

Payslips, deductions and tax Simplified Revision Notes for NSC Mathematical Literacy

Payslips, deductions and tax

Understanding Payslips

Key Components of a Payslip

Taxation in South Africa

PAYE (Pay-As-You-Earn)

How to Calculate PAYE Tax

3. VAT (Value-Added Tax)

Worked Example

Activity 12: Payslips, deductions and tax

a) Calculating Total Income and Net Pay

3. Calculating PAYE Tax

4. VAT Discount for Employees

a) Calculating VAT-Free Price

Summary

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