Salaries and Wages

Order of Business• Lesson 1:

• Introduction to Salaries & Wages• Labour remuneration• Administrative requirements• Basic (Gross) Salaries & Wages• Deductions• Net Salaries & Wages• Cost of Salaries & Wages to the Company (Contributions)• Activity 8.2 (2)• Activity 8.3

1. Labour RemunerationThe Labour Relations Act (LRA) No. 66 of 1995 governs all labour relations in South Africa.

Basic Types of Remuneration for services rendered by employees include:• Salaries• Wages• Commission

The following factors makes the accounting for remunerating employees complicated:• Employees paid at different time periods (weekly, hourly, monthly)• Employees earn different rates of remuneration• Overtime work is paid at a different rate to normal rates• Numerous deductions (PAYE) are paid over to third parties• Provision for employees’ leave

As you will note: Payroll Accounting is a specialised area within Accounting.

2. Administrative Requirements

Employees are legally bound to maintain detailed records of their employees:

Full Name & Address, Date of Birth, ID No., Marital status, Children…

The following records should also be maintained:

Work done (Clock cards, attendance register etc.)

How gross and net pay were calculated

Amount of tax deducted for SARS (Personal Income Tax)

Employment Contract

Each business employing people must register as an employer with:

Regional Services Council (RSC) – To pay service levies on S&W

SARS – To pay taxes (PAYE and skills development levies)

Department of Labour – To pay UIF contributions

3. Basic Salaries and WagesBasic Salary: calculated on an annual basis & paid monthly => gross salary

For Example:An annual salary of R156 000 is R??? per monthAn annual salary of R240 000 is R??? per month

In many instances senior managers receive a salary package, which includes perks (such as bonusses, vehicle allowances, etc.). These perks are mostly linked to performance at intervals.

Wages: the term used for remuneration paid to an employee on the basis of an hourly rate (rate per hour). The wage depends on the amount of hours worked and the rate paid per hour and therefore varies. Calculate the gross wage for: R12.5 p/h for 40 hrsR30 p/h for 32 hrs

On Sundays & Holidays the wage rate per hour is higher than the normal rate. Therefore an accurate record must be kept. A clock card system is often used to record the hours worked. Shift workers in factories are mostly paid in wages.

4. Deductions

Deductions are made from the gross earnings of an employee. Some are compulsory (contractual agreement) and others voluntary.

Deductions include:

a. Income Tax Deductions

b. Unemployment Insurance Fund (UIF)

c. Skills development levy (SDL)

d. Pension fund

f. Medical aid

g. Labour Union fees

4. Deductions

a. Income Tax Deductions:

PAYE: Tax paid by each employee based on the salary earned (Tax Scales)

The Employer is “obliged” to pay these amounts to SARS.

b. Unemployment Insurance Fund contributions (UIF):

The fund was established to provide short-term financial relief to workers when they become unemployed, or are unable to work because of illness, maternity or adoption leave.

UIF is compulsory and is paid by the employer.

4. Deductionsc. Skills Development Levey (SDL) The SDL is a compulsory levy scheme for funding education and training.

The SDL is aimed at developling skills of the South African workforce by improving and developing amongst others, the following:

Quality of life for workers

Productivity in the workplace

Self-employment

Delivery of social services

Levels of investment in educationand training in the labour market

The SDL should also encourage employers to:

Provide opportunities for new entrants to the labour market to gain work experience

Provide and regulate employment services

Assist employers in finding qualified employees

The SDL also does the following for workers:

Use the workplace as an active learning environment

Provide them with opportunities to acquire new skills

Employ persons who find it difficult to be employed (if you are disabled)

Provide opportunities to participate in leadership

Help retrenched workers re-enter the labour market

4. Deductions

e. Pension Fund contributions Provides an income to employees after retirement

The employee and employer agrees to the deduction. The Employer also contributes to the pension fund. The contributions are paid over regularly to the pension fund concerned.

f. Medical Aid contributions

Funds to assist employees with medical expenses. These contributions are also voluntary and the employer may contribute. The contributions are paid over regularly to the pension fund concerned.

g. Labour Union fees

If an employee is a member of a labour union, the union will instruct the employer to deduct the membership fees and pay it over.

Voluntary deductions are those that the employee specifically requests in writing from the employer.

5. Net Salaries and Wages

Gross Salary

(-)

Deductions

=

Net Salary

5. Net Salaries

Willem’s annual gross salary is R96000.

PAYE equates to 10% of his basic remuneration.

Willem also has the following deductions:

• Medical Aid of R500 a month

• UIF: 1% of the gross salary

Calculate Willem’s monthly Net Salary.

5. Net Salaries

Gross Monthly Salary:

96000/12 = R8000

Deductions: (Company pays on employees’ behalf)

PAYE: 8000*10% = R800

Medical Aid: R500

UIF: 8000*1% = R80

800+500+8 = R1380

Net Salary:

8000-1308 = R6620

6. Cost to Company (of Salaries/Wages)

Besides the Salary/Wages paid to the employee, the following compulsory and voluntary payments made on behalf of the employee further increases the total salary/wage bill.

Compulsory and Voluntary payments include:

- Pension Fund contributions

- Medical Aid contributions

- Housing Allowance

- Motor vehicle or travel allowance

- UIF contributions

- Bonuses

- Uniform Allowance

- Skills development levies

- Employee leave benefits

Pg. 286

5. Cost to Company

Gross Salary(-)

Deductions

=

Net Salary

+

Employer’s Contributions =

Cost to Company

5. Net Salaries

Willem’s monthly Gross Salary is: R8000.

His Deductions for Medical Aid is R500 a month & UIF is R8.

The Employer contributes on a R1-for-R1 basis to Williem’s Medical and UIF.

Calculate the total cost to the company of Willem’s monthly salary.

R8000+R500+R8 = R8508

Activity 8.3

Refer to Excel Document!

Salaries and Wages

1. Admin & recapping yesterday’s work & homework2. Class Activity – Salary Calculations

3. Salary Scales

Lesson 2:

Recap:

• Which Act covers labour relations in SA?• What is the term used to describe both salaries & wages?• Mention key differences between salaries and wages?• How do you calculate the Net Salary/Wage?• Identify compulsory and voluntary employee deductions.• How do you determine the total cost to the company of salaries and wages?

Surname, Name(s) For: 24-08-2015BELL, MATTHEW JAMES BISCOMBE, RYAN CARLIE, IGHLAAS CRUYWAGEN, SHANEAL DAVIDS, BRETT DEGLON, MATTHEW PAUL DOLLMAN, WADE BRANDON FRANCIS, RYAN ROBERT JACOBS, SHUAIB JOSEPH, LOVELL KHAN, WALEED MILLS, DAVID BRUCE MURRAY, LIAM BRENDON NGQAKAYI, ZOLANI SAMUEL PARKER, TASHREEQ PETERSEN, JOSHUA MATTHEW PHILANDER, CALEB JOSHUA PLUKE, KYLE MATTHEW RUSSELL, LYLE WIMMERS, SHOHN CHRISTIAAN

Homework

Activity 8.3Samantha's Annual Salary Packet Gross Salary (annual) 84000Bonus 7000Total earnings 91000

Deductions = "Contributions" 9000Medical aid deduction (300x12) 3600Pension contribution (380 x 12) 4560UIF (70 x 12) 840

Total cost to company 100000

Gross Salary (annual) 84000Bonus 7000Total earnings 91000 Employee deductions (20310)PAYE (942.5 x 12) 11310Medical aid deduction (300x12) 3600Pension contribution (380 x 12) 4560UIF (70 x 12) 840 Take-home earnings 70690Monthly earnings (÷ 12) R5.890,83

Class Activity:

Refer to Excel Document!