MONEY 101: Understanding your payslip
We are often paralysed by the idea of investing, but becoming a successful investor starts long before you make your first investment. In this series of articles, Finweek draws up a road map to get you from financially flustered to investing with confidence.
Before we get to the nitty-gritty of investing, we need to lay the foundation for a healthy bank balance, starting with your income. Most people rely on their monthly income to sustain themselves and build wealth. Ensuring that you know where your money is going starts with understanding your payslip.
Employers are required by law to keep a record of money paid to an employee in the form of a payslip, explains Lisa Griffiths, associate director of financial services at BDO Wealth Advisers. If you afford your payslip no more than a cursory glance, you could be losing money before
your salary even hits your bank account.
The basic structure of your payslip
Your first point of departure when looking at your payslip should be familiarising yourself with what is normal. This will help you spot deviations easily.
Your payslip may also include sections like your total earnings for the year and available leave days.
Commission, overtime and bonuses must be ref lected as individual items on your payslip and ref lected in your tax certificate every year, says Rob Cooper, Sage VIP’s tax expert.
“It is important to be aware of fringe benefits, as these have an impact on your tax contribution,” Cooper advises. Fringe benefits are contributions made by the employer that the employee is taxed on, and includes benefits like a company car and company contributions to a retirement annuity or medical aid.
“Often t hese contributions are added together and indicated as a single amount on your payslip. The values change every year and an employer has every right to ask for a detailed account of these benefits,” he says. He adds that deductions reduce your ta xable remuneration. In terms of medical aid contributions, a proposed change in legislation to the medical scheme fees ta x credit, expected to take effect in March 2016, could have a dramatic impact on an employees’ net pay, which in turn affects the amount of ta x payable. Because companies aren’t required to get employee consent to implement statutory changes, this dramatic change can happen suddenly and unexpectedly.
Empl oy e e s wh o ea r n on l y commission should ensure that it is indicated as such on their payslip. “If you earn only commission, you can claim expenses,” Cooper says. Asking the right questions “When you receive an offer from an employer, make sure you take the time to f ully understand the total value of what you are being offered. Some companies operate on a total cost to company basis, which means that the amount they offer is the full value of your cash salary plus the value of all of the benefits. Others operate on a salary plus benefits basis, which means that the amount they offer is just the cash salary amount.
“It’s important to understand what benefits are also offered and the total value of these benefits. This will help you to make an informed decision before accepting an offer. It’s also a good idea to ask about how the company handles t hings l i ke performance bonuses, commission or 13th cheques. This will help you to understand if there is the potential to earn more than the offered package, and if so, what you need to do to be eligible,” says Sifiso Mthembu, an executive at FNB Human Resources.
Griff it hs and Cooper agree it ’s important to read your payslip every month and to keep a copy. Cooper says payslips can be used as proof if any mistakes creep in on your tax certificate and are often required when applying for credit.