Taxes: What Makes Up Your Payslip?

If you’re an employee, you probably receive a payslip every month displaying a whole bunch of numbers you never really cared for other than the big bold one marked “NET PAY”.

But understanding what makes up your pay and how much you are being taxed often has massive implications for how HR departments decide what you’re worth when you hit the next job.

Here are some basic definitions to get you started on understanding what comes onto your payslip every month:

1. Gross income: This is the total amount of money and benefits you get from your company. It literally comprises (1) your basic monthly salary (2) fringe benefits and (3) annual leave days. (Yip, annual leave days are part of your gross income and if you forfeit it, it’s literally like throwing money down the drain).If you’re a sales person, gross income also includes your commissions.

2. Fringe benefits: These are any non- cash “perks” your company gives you. E.g. say you get company discounts for purchasing things like laptops, subsidized meals or low interest loans: these are benefits that your company advertises to entice you to work for them. (If you’re not getting these, time to hit the job market… just kidding).

Tip: Although fringe benefits are not necessarily cash pay outs, its value is still added to your gross income and is taxable. Suppose you don’t use it? Then depending on the size of the portion you don’t use, so too, the larger the size of the tax.

3. Allowances: For a while, the definitions of fringe benefits and allowances seemed blurry to me. To explain each, an old textbook says that whilst the former falls within gross income, allowances are separate (douchebag answer). The closest difference I can tell you is that whilst fringe benefits are strictly non- cash perks, allowances are cash kinda- perks.

E.g. of allowances are: Your car/ travel/ petrol allowance, travel, accommodation and overtime allowances.

Tip: Allowances can become very complicated in the way they are handled when companies calculate your taxes. So if you’re not logging your travel or keeping abreast of how much of the allowance you’re using, this will bite you back in taxes later. Beware the allowance!

4. Exemptions: These are the coolest components in the tax calculation as it refers to all of the money you can delete off of the calculator before your final taxes are crunched. E.g. of exemptions are bursary, government services and relocation costs exemptions.

Tip: Remember that, whilst you want to make the most money from your job, you also want your taxes to be calculated using the lowest possible base. Exemptions are a way to get your taxable income as far down as possible. So if you’re in an industry that allows you the exemption, be sure not to miss it.

5. Deductions: Last, but not least, these are mandatory amounts that get subtracted from your income before the tax is calculated and includes things like your pension, provident, donations & retirement fund contributions. 

Finally we come to how companies actually calculate the actual tax; and the formula is quite a simple 2 step process:

1. Gross income (salary, fringe benefits) – Exemptions + Allowances (reduced for certain elements I won’t go into here) – Deductions = Taxable Income

2. After taxable income is calculated, companies look at the normal tax tables written by SARS to reach the final tax amount depending on which tax bracket you fall into. E.g. If your taxable income was R220 000 per annum, then your tax would be R41 532.

Disclaimer: This is not financial advice. Topics covered are strictly informational and not prescriptive or instructive by nature.