January pay day not what you expected?
January's pay slip will have been much anticipated by most South Africans as it signals the end of a month of much enforced frugality after December's excesses.
But for many, it may have also been a day of disappointment as the anticipated amount may have been lower than expected.
Whether you started a new job or received an annual increase effective at the end of the first month, it is easy to expect more take-home pay than your bank account reflects.
Young employees who believe they have negotiated a competitive remuneration package are often disappointed by how much cash lands in their bank account, says Andre Lindeque, a consultant at leading wealth and financial advisory firm GTC.
He says they often lack knowledge about remuneration structures, especially cost-to-company structures, and how they will affect their take-home pay.
The size of your salary increase this year — if you are lucky — while your medical scheme contributions are likely to have
increased by around 9% since last year
Your salary is just one part of the cost-to-company package, which can include contributions to a pension, provident or retirement annuity fund, group life insurance and medical scheme contributions.
Your package may also include tax, leave and bonus allocations, and the components and extent to which companies contribute varies significantly from employer to employer. Ideally, before you conclude your negotiations, you should ask for a mock pay slip so you know exactly what to expect, says Lindeque.
If you're unhappy with your take-home pay at the end of your first month, you may not have many options, but you can ask:
Can I pay less tax?
There really aren't a lot of ways in which you can restructure your salary to pay less tax, says Daniel Baines, tax consultant at Mazars.
Depending on how much you drive for work, you may get some immediate cash
relief by restructuring your travel allowance, he says.
Most employees pay tax monthly on 80% of their fixed travel allowances in the expectation that you can claim at least 20% of the allowance as work-related travel expenses when filing your tax return.
If you can prove you do a lot of travel for work purposes, you can ask your employer to tax only 20% of the allowance, which can give you some immediate tax relief.
However, if you do this and then at tax year-end claim a deduction for work-related travel that is less than 80% of the allowance, you will have to pay the outstanding tax.
If your employer gives you a cellphone and you use it more than 50% for work purposes, this will not be taxable at all in your hands, Baines says.
If you earn less than R600,000 a year and are paying your own or a family member's school or university fees, you can ask your employer to pay a bursary or scholarship up to R20,000 per tax year for schooling or R60,000 for tertiary education. The family member could be a spouse, child, parent, sibling, grandchild, niece/nephew, uncle, aunt or grandparent, but you must prove that they are studying at a recognised institution, says Baines.
Can I pay less for medical cover?
Higher medical scheme contributions can also make your inflation-linked salary increase look sick.
Scheme contributions have increased on average 9.19% since last year, according to Alexander Forbes, but your salary may only have increased by about 4%, the consumer price index for the year to December 2019.
You may be able to pay less for your medical scheme cover if you have some choice in the scheme you belong to or the option, but if you move to a cheaper option or "buy down", do so with care.
Craig Comrie, CEO at Profmed Medical Schemes, says members are always looking to pay less for medical scheme cover, but they often don't realise what cover they give up when buying down.
Downgrading to an option that restricts your choice of doctors, hospitals, pharmacies or other providers is a sensible way to save on contributions, but make sure you know exactly what cover you are giving up.
Comrie says while schemes typically cover your hospital stay in full, the cost of anaesthetists, surgeons, medication and technology may only be at scheme rates on more basic options. Specialists on average charge twice as much. A basic option may therefore short-pay your total costs by as much as 32%, he says.
If you think you may be exposed to out-of-pocket costs from higher-charging specialists, consider gap-cover insurance. If you lose day-to-day benefits, provide for the additional costs in a savings account designated for medical expenses. Comrie says most members who downgrade to, for example, a hospital plan option, fail to set aside dedicated savings for out-of-hospital costs.
You should also look at any wellness programmes for which you pay a fee - many people get good value out of them, but if you are not engaging, chances are you are just subsidising someone else's rewards.
Can I pay less for group life?
More employers and retirement funds are adopting flexible group life and disability cover, which gives you the option to reduce the cover and the premiums you pay, says Michael Prinsloo, head of employee benefits consulting strategy at Alexander Forbes.
But currently most employers offer a fixed benefit that you cannot change, he says.
While the flexibility to downgrade your group life cover may be good for people nearing retirement, the reality is that most South Africans are woefully underinsured and should not opt for this, says Prinsloo.
And of the few who are in a position to
reduce their cover, most probably need to redirect premium savings to their retirement savings since most people have made insufficient provision for retirement.
While you may resent any deductions from your pay, remember that group cover amounts to only 1% to 1.5% of your income and offers very necessary protection against losing your ability to earn, and protects your family in the event of your death.
If your group scheme offers funeral cover, check if you can save on cover bought in your own name.
Can I contribute less for retirement?
Most retirement funds have a minimum contribution but many allow you to contribute more than the minimum. However, if you are contributing more than the minimum, think twice about reducing your contributions - most South Africans have hopelessly too little saved for retirement.
Prinsloo says if you are one of very few contributing close to the maximum of 27.5% of your salary to a retirement fund, you may be in a position to contribute less, but not if you are contributing closer to 10%.
He says many people try to increase their take-home pay by contributing as little as they can, but they forget that each rand saved for retirement earlier in life earns more over time, and failing to save early means you will have to contribute at a much higher rate later in life to catch up.