Every first-time employee has aspirations and visions as to how they will spend their first month’s salary.
Young employees are, however, often disappointed by the actual rand amount which reaches their bank account – even after they believed they had negotiated a competitive remuneration package.
This is according to André Lindeque, a consultant at wealth and financial advisory firm GTC, who said many first-time employees find themselves ill-prepared when they realise that the total amount they are actually taking home differs substantially from the amount they assumed they would be getting, he said.
He attributes this to a lack of knowledge about their remuneration structures, regardless of the education or skills level of the new employee.
“While tertiary education institutions may prepare you for your profession, they do not impart much practical advice and information about remuneration structures.
“One of the biggest concepts that still catches new starters by surprise is the difference between their cost to company (CTC) and net salary.”
CTC is the total remuneration that an organisation pays an employee, of which the salary is just one component.
“The elements included in the CTC may vary from business to business and they could include voluntary deductions such as contributions to a pension, provident fund or retirement annuity, group insurance and medical aid,” said Lindeque.
“CTC will include statutory elements such as Pay-as-you-Earn (PAYE) taxation and Standard-Income-Tax-on-Employees (SITE), leave and bonus allocations.
“These components and the extent of the company’s contributions can vary significantly between organisations and may not always be explained upfront. It is therefore advisable for employees to familiarise themselves with these items and get clarity on what their employer is offering, to avoid unexpected disappointment at the end of the first month,” Lindeque said.
In addition to this, new employees need to be aware of those items that are a feature of all payslips and which will determine their net salary, he said.
“Employees who are new to the workforce seldom appreciate that they will be taxed on their remuneration, regardless of how little they believe they earn.
“Companies are responsible for deducting Pay-as-you-Earn (PAYE) tax and for making contributions to the Unemployment Insurance Fund (UIF) on behalf of their employees,” said Lindeque.
“Alongside medical aid and retirement fund contributions, these items can make a significant difference to the money employees can expect to register in their bank accounts at the end of each month.”