Communicate Blog

At a recent dinner party I got involved in a discussion with some of my friends around salaries.  Well to be exact, it started out as a discussion and soon turned into an argument. I was surprised to find that many of my friends have no clear understanding of some of the most common terms around salaries and I had to admit that after this conversation, even I was confused.

Do you know what the difference is between your cost to company and basic salary? What are considered benefits and how can it differ from company to company? Do companies have to offer you medical aid? Confused yet? I am.

It’s important to have a very clear understanding of these variables especially if you are in the job market or before you enter salary negotiations. You need to make sure that when you accept a job offer you are not short changed as this is, after all, your future.

So what do you need to know?

Basic Salary:
Your "Basic Salary" is the amount you earn before any additional benefits such as medical aid, pension, and allowances are added to your salary. Your basic salary is the section of your salary that is fixed every month and would not include any bonuses or 13th cheque.

Cost to Company:
This is a term used to calculate the total cost to the Company to employ you, in other words all the costs associated with your employment contract. This could include company contributions to Medical, Pension/Provident, UIF, SDL, group insurance etc.

Net Salary:
This seems to be the one that people have the least problems with, as everybody is very much aware of the money that is paid into their bank at the end of the day. Your net salary is just that, it’s the amount you take home after all your deductions.

Tax:
If you are a salary earner you are well aware that a certain amount of money is deducted every month for PAYE (Pay As You Earn). PAYE is levied on your basic salary and your fringe benefits. Your employer is obligated to deduct it from your gross salary and, in turn, pay it over to SARS.

UIF:
This is another deduction that is standard across the board for all employees.  All employers have to contribute 2% of their remuneration (1% from you and 1% from your employer) – each month. The Unemployment Insurance Fund (UIF) provides an income to workers who have become unemployed through retrenchments and dismissals and to those on maternity leave.

Medical Aid:
This will depend entirely on the company whether they contribute to your medical aid or whether it is actually part of your package. These days medical aid contributions aren’t legislated but normally contributions are deducted before you get taxed. Keep this in mind, as it would make a huge difference if you are changing jobs and now find your new company doesn’t contribute to your medical aid and you have to end up paying that for yourself.

There is lots of room for confusion so the key when it comes to your salary is be informed, understand what you are getting paid and what deductions are coming off your salary, and most importantly, don’t be shy to ask if you are unsure.