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Salaries and wages are paid to staff or personnel employed in any business and organisation for the services they render to the business or organisation. In some businesses or organisations, this may be one of the biggest expenses that a business incurs to make a profit or to render services or to sell goods.

When employing a person, you will normally need a contract or an agreement defining the duties, remuneration, benefits, etc. with each of the employees. Should you pay or calculate any amount not defined in such agreement, you may overpay the employee. On the other hand, if you do not pay any amounts defined in such contract or agreement, you may underpay the employee, which could possibly result in a dispute, or an unhappy employee.
  1. Salaries

    Salaries are usually paid on a monthly basis at a fixed rate for the month. There is usually no direct relationship between the hours worked or the number of units produced, as is the case with wages.


  2. Wages

    Wages are normally paid on a weekly, fortnightly and in some cases on a daily basis. Wages normally has a direct relationship with the amount of hours worked or the number of units produced in the case of piecework. In some cases, wages can be charged to the trading account, where it is a component of the cost of the goods sold. However, when it is not directly related to the cost of goods sold, it may be charged to the profit and loss account as normal business expenses.

  3. Gross Pay

    In the case of wages, gross pay is the total of the basic hourly rate multiplied by the number of hours worked, plus any other remuneration such as overtime, allowances, etc. paid to an employee or worker before any deductions is taken into consideration.

    In the case of salaries, gross pay is the total of the basic monthly salary plus any allowances, such as commissions, travel allowances, etc. before any deductions is taken into consideration.

  4. Deductions

    Deductions are any amounts that you must deduct (in accordance with any legislation or any agreement) from an employee or worker’s salary or wages. The following are some examples of deductions:

    • Unemployment Insurance Fund is currently calculated at a rate of 1 percent of the gross earnings.

      • Employee’s Tax must be calculated and deducted from the employee’s salary or wages in accordance with the Income Tax Act, as amended from time to time. However, if an employee or worker earns less than a certain threshold, which is determined from time to time, no income tax is to be deducted from that employee or worker’s salary or wage. The tax is calculated from the income tax tables or IRP 10 tables on the taxable income.

        • Pension scheme or provident fund of which the employee is a member.

          • Medical aid or medical scheme of which the employee is a member.

            • Insurance - Life and/or short term insurance for which an employee has a valid debit order to deduct the premiums from his or her salary or wage.

              • Trade Union or any other agreed deductions.

                • Garnishee orders issued by a court of law (in order to recover bad debts or maintenance from an employee’s salary or wages.

                  Deductions are actually money that is deducted on behalf of an employee. It is normally paid over to the relevant institution or statutory body.

                • Net Pay

                  This is the amount that an employee will take home after any deductions are made from his gross pay. The net pay is usually paid in cash or cheque to the employee or worker or by bank transfer directly from your bank account into the employee’s bank account.

                • Employer’s Contributions

                Employer’s contributions are the amount that the employer must contribute towards certain deductions deducted from an employee’s salary or wages. In some cases levies must also be paid to the relevant authorities, calculated on the payroll. The employer must pay the employer’s contributions to the relevant institution or organisation together with the amount deducted from an employee’s salary or wage (if applicable).

                The following is a few examples of employer’s contributions:

                  • Unemployment Insurance Fund calculated at a rate of 1 percent of the gross earnings.

                  • Pension or provident fund.

                  • Medical aid or Medical scheme.

                  • Skills Development Levy (SDL) – 1 percent of the payroll must also be paid to the South African Revenue Services. In the case of the Skills Development Levy, no amount is deducted from an employee’s salary or wages.

                The administration of salaries and wages, consists of the following:
                1. The gross salaries or wages, deductions and net pay as well as any employer's contributions need to be carefully calculated according to legislation.

                2. A pay sheet needs to be handed to each of your employees at the end of the pay period, setting out the amounts of the earnings (basic salaries and wages), deductions and the net pay. These pay sheets are summarised in payroll reports.

                3. These payroll reports are entered in a general journal or payroll journal to record the expenses (earnings (salaries wages and allowances) and employers contributions) and to record the amounts deducted and payable to the various institutions and authorities on who's behalf the deductions were made.

                4. The payments (cheques or bank transfers) made to the employees for their net salaries or wages and the payments to the institutions for the deductions made from the salaries or wages need to be recorded in the payments journal.

                  There are statutory requirements, which an employer must comply with regarding salaries and wages. The Tax Authorities or other relevant statutory bodies may amend any percentages or comments regarding salaries and wages. This will also differ from country to country. Some links to the web sites of the statutory bodies for South African based users are included in the South African Statutory Requirements topic. You may also click on the speed button of this Help File to access the Web Sites or the Tax Authorities Web site for United Kingdom (UK) based users.