Salaries, wages and deductions

Three different numbers for one employee

When Khanya Motors in Durban pays Nomsa at the end of the month, three amounts matter and they are all different.

Gross earnings is what she has earned: her basic salary plus any overtime or bonus. This is the full amount the business promised her.

Deductions are amounts taken out of her earnings and sent somewhere else on her behalf. She never touches this money, but it is still her money being spent. Typical deductions are PAYE (income tax), UIF and a pension or medical aid contribution.

Net pay is what actually lands in her bank account: gross earnings less deductions.

The key idea is that the business's expense is the gross amount, not the net amount. The business gave up R12 000 of value for Nomsa's work. It simply split that R12 000 between her bank account and several other parties.

Where the deducted money goes

On payday the business has not finished. It holds the deducted money and owes it to somebody:

Each of these is a liability from payday until the money is actually paid over, usually in the following week or month.

Employer contributions

Alongside what it deducts, the employer usually pays its own contributions for the same employee. UIF is the clearest example: the employee contributes 1% of earnings and the employer contributes another 1%. Many employers also match a share of the pension contribution. These amounts are a genuine additional expense of the business, and they also create a liability until they are paid over.

Worked example. Nomsa Dlamini earns a gross salary of R12 000 for March. Her deductions are PAYE R1 500, UIF R120 (1% of gross) and pension fund R900 (7,5% of gross). Khanya Motors contributes UIF of R120 and pension of R900 on her behalf.

1. Total deductions = 1 500 + 120 + 900 = R2 520
2. Net pay into her account = 12 000 - 2 520 = R9 480
3. Employer contributions = 120 + 900 = R1 020
4. Total cost of employing Nomsa for March = 12 000 + 1 020 = R13 020

Her payslip says R12 000 at the top and R9 480 at the bottom. The business's records say R13 020. All three numbers are correct answers to different questions.

Core checkpoint: given gross earnings and a list of deductions you can calculate net pay, you can name who each deduction is owed to, and you can explain why the total cost to the employer is higher than the gross salary.