Payslips are some of the most important documents that you’ll receive, so it is imperative that you understand what the various deductions and items on your payslip are.
Getting a job is the first step towards financial freedom, but – as anyone who has ever received a salary will know – your cost-to-company salary and what gets paid into your account are two different figures.
There is a lot of information on your payslip, so it is important to understand what the various deductions on your payslip are.
Walter van der Merwe, CEO of Fedgroup Life, says that understanding your payslip is a very important step towards financial literacy, and ultimately financial freedom.
“The road to financial freedom requires hard work and discipline. It also requires being on top of all your money affairs. Understanding your payslip is the start of that journey. What do you earn, what is deducted, why is it deducted? Answer those questions and you are on your way to providing for yourself, your family and your requirements,” he says.
So, let’s look at what the most common items on your payslip mean.
Cost to company (CTC): This is the total amount of money your employer spends on you. This figure is the starting point before deductions. Let’s have a look at the most common, deductions if you are a full-time employee.
Pay-as-you-earn (PAYE) Tax: This is the tax amount that employers deduct from your income and pay monthly to the South African Revenue Service. This amount is calculated on a sliding scale that depends on how much you earn.
Unemployment Insurance Fund (UIF): This fund gives short-term relief to workers if they become unemployed or are unable to work because of maternity/adoption leave, or illness. It also provides relief to the dependents of a deceased contributor. You and your employer each contribute towards UIF so that you can have access to the fund in case you become unemployed.
Retirement contribution: Most employers deduct an amount from your salary for retirement savings (pension or provident fund). Sometimes employees are given the opportunity to decide what percentage of their salary they want to contribute and other times the employer chooses a percentage. There is some flexibility, but you need to understand how that works, what the company has put in place for you and what your options are. Because retirement contributions are tax-deductible, it is one of the most effective ways to save. More importantly, you are paying this money towards a better future for yourself.
Click here for more information about retirement contributions.
The unfortunate reality is that very few people pay enough attention to what information is contained in their payslips and fewer still understand what every item means.
Once you understand everything, you should check your payslip carefully and make sure that it is accurate, as mistakes could turn out to be costly.
“If there’s anything on your payslip you don’t understand, talk to your manager or HR department. Don’t just leave it,” says van der Merwe.