FACULTY OF ACCOUNTING AND INFORMATICS
DEPARTMENT OF FINANCIAL ACCOUNTING
DEPARTMENT OF FINANCE & INFORMATION
MANAGEMENT
FINANCIAL LITERACY
(FNLT101/FINL101)
Labour
2024
Reviewed by Miss L.T Zulu (July 2024)
Introduction
It is physical and/ or mental effort that is used to manufacture products or render a service.
Labour cost is the reward paid for using human efforts of employees. The single major of
an employee’s remuneration is usually the basic wage or salary.
Calculating labour cost (there are two methods)
• Time based system
• Incentive based- morale may improve because workers are rewarded for extra effort
Our focus will be on the time based system.
Wages are payments made on an hourly or daily basis and are usually paid weekly.
Salaries are fixed payments made on a monthly basis.
Basic wage is calculated on a 40-hour week.
Any hours worked over and above the minimum 40 hours is called overtime which is paid
at a higher rate. Time and a half for normal overtime, which is 11/2 times the basic wage
rate (weekdays and Saturdays). Double overtime is twice the basic wage rate (Sundays
and Public holidays).
Bonuses are usually paid in recognition of exceptional productivity.
Deductions are:
• Pension Fund,
• Unemployment Insurance Fund (UIF),
• Medical aid,
• Pay As You Earn (PAYE)
Reviewed by Miss L.T Zulu (July 2024)
Income tax (Pay As You Earn PAYE)
Tax is calculated on the taxable income of an employee using tax tables that are supplied
by South African Revenue Services (SARS). The employer is responsible for deducting
the tax from the employee’s weekly or monthly remuneration and pay it directly to SARS.
At present Pension Fund contributions are tax deductible.
Pension Fund contributions
This is calculated on the basic wage or salary of the employee at a fixed percentage. It is
deducted and paid to the pension fund administrator. Usually both employer and employee
contribute to this fund, and it is generally an equal contribution.
Unemployment Insurance Fund (UIF)
This is a legal and compulsory deduction for the employee’s benefit by the employer, and
is governed by the Unemployment Insurance Act 30 of 1966. Employers must register all
employees who work for more than 24 hours per month. The deduction is 1% of the basic
wage/salary and both employee and employer contribute equally to the fund.
Salaries Journal
Salaries are usually paid monthly by EFT directly into the employees’ bank accounts.
The amount paid to the employee is the NET salary which is gross salary less deductions.
The employer will prepare a Salaries Journal on a monthly basis, just like the cash Receipts
Journal etc. (in a previous topic). It is here that the provision is made for the gross salary
and deductions. The payments are made to the employees (net salaries) and the various
organisations like pension fund, medical aid, UIF.
Wages Journal
Wages are usually paid monthly by EFT directly into the employees’ bank accounts.
The amount paid to the employee is the NET wage which is gross wage less deductions.
This journal is drawn up weekly and provides for basic wages, overtime, deductions and
employer’s contributions. The payments are made to the employees (net wages) and the
various organisations like pension fund, medical aid, UIF.
Reviewed by Miss L.T Zulu (July 2024)
Calculation of an employee’s gross and net wage: -
Basic Wages
+ Normal Overtime +10
+ Double Overtime +2
+ Bonus +1
= Gross wage = 14
- Pension fund -1
= Taxable income 13
- Other Deductions -3
= Net Wage = 10
Note: Taxation should be calculated on taxable income.
Reviewed by Miss L.T Zulu (July 2024)
Example 1
Joseph Mlangeni works at a manufacturing firm. The normal hours per week is 40 hours.
During the week ended 29 February 2023, he had worked 53 hours as follows:
Sunday 4 hours
Monday 8 hours
Tuesday 9 hours
Wednesday 10 hours
Thursday 8 hours
Friday 9 hours
Saturday 5 hours
The firm pays time and a half for normal overtime and double time for Sundays and public
holidays. Joseph’s current wage rate is R 20 per hour and he contributes 3% of his basic
wage to a pension fund, 1 % to UIF from gross wages, R 25 per week to a medical aid
scheme and his PAYE amounts to 18%.
Required
Calculate the net wage payable to Joseph Mlangeni on 29 February 2023.
Reviewed by Miss L.T Zulu (July 2024)
Solution – Example 1
Joseph Mlangeni’s wage on 29 February 2020 R
Basic wage (40 hours x R 20) 800.00
Normal overtime (9 hours x R 20 x 11/2) 270.00
Double overtime (4 hours x R 20 x 2) 160.00
Gross Wage 1 230.00
Pension Fund (3% x R 800) (24.00)
Taxable Income 1 206.00
Deductions (254.38)
Medical aid 25.00
U.I.F (R 1 230.00 x 1%) 12.30
P.A.Y.E (R 1 230.00 – R 24 x 18 %) 217.08
Net Wage 951.62
Reviewed by Miss L.T Zulu (July 2024)
Example 2
Use the following information to prepare the Salaries Journal of Zandile Traders for the
month ending 30 April 2020.
Employee Gross Salary Medical aid UIF PAYE (SARS)
T Cele R 27 900 R 660 R 139.50 R 2 285.10
B Botha R 37 500 R 900 R 187.50 R 3 941.10
N Naidu R 30 000 R 750 R 150.00 R 2 445.00
An amount equal to 8% of gross salary is deducted from the salaries of employees for the
pension fund, and Zandile Traders contributes an amount equal to the pension fund.
Zandile Traders contributes equally to the UIF in respect of the amount deducted from each
employee for unemployment insurance.
Reviewed by Miss L.T Zulu (July 2024)
Example 2 - Solution
Zandile Traders
Salaries Journal – April 2020
Rands
Employee Gross Deductions Net Salary Employer Contributions
Salary Pension Medical UIF PAYS Total Pension UIF Total
Fund Aid deductions Fund
T Cele 27 900 2 232 660 139.50 2 285.10 5 316.60 22 583.40 2 232 139.50 2 371.50
B Botha 37 500 3 000 900 187.50 3 941.10 8 028.60 29 471.40 3 000 187.50 3 187.50
N Naidu 30 000 2 400 750 150.00 2 445.00 5 745.00 24 255.00 2 400 150.00 2 550.00
Reviewed by Miss L.T Zulu (July 2024)
Example 3
Use the following information to prepare the Wages Journal of Jack’s Traders for the month
ending 31 March 2020.
Jack’s Traders contributes equally to the pension fund and to the UIF as contributed by
each employee.
Time and a half for normal overtime and double time for Sundays and public holidays.
Employee Normal time Normal rate per Normal Overtime
hour
R Mugabe 40 R 20 5
W Wiseman 40 R 26 3
J Jules 40 R 25 2
The deductions are as follows:
Employee Pension Medical aid UIF PAYE Union
Fund membership
R Mugabe R 128 R 53 R8 R 274.86 R6
W Wiseman R 170 R 100 R 11 R 262.06 R6
J Jules R160 R 66 R 10 R 249.60 R6
Reviewed by Miss L.T Zulu (July 2024)
Example 3 – Solution
Jack’s Traders
Wages Journal – March 2020
Employee Normal time Overtime Gross Deductions Net Employer contributions
Hours R Hours R wage Pension Medical UIF PAYE Union Total Wage Pension UIF Total
aid
R Mugabe 40 800 5 150 950 128 53 8 274.86 6 469.86 480.14 128 8 136
W Wiseman 40 1 040 3 117 1 157 170 100 11 262.06 6 549.06 607.94 170 11 181
J Jules 40 1 000 2 75 1 075 160 66 10 249.60 6 491.60 480.31 160 10 170
Reviewed by Miss L.T Zulu (July 2024)
Exercise 1
The fast food shop has been established since 2019. The shop policy is that each employee
must work an 8-hour shift and must work for a minimum of 5 days per week. The following
are details for new staff employed by the fast food shop for the week ended 14 March 2020.
Name Position Normal rate Hour worked
T Vezi Waitress R 80 46
M Hall Manager R 160 43
• Employees contribute 7% of their basic wage to the pension fund and 1% of their
basic wage to the UIF. The company contributes on a 1:1 basis.
• Each employee contributes R 100.00 per week to their respective medical scheme,
the company contributes R 160.00.
• PAYE is 18% according to SARS and must be paid over each month.
• Employees receive normal overtime rate of time and a half.
• The staff members did not work on Sunday and Public Holidays in the week.
• Time and a half for normal overtime.
REQUIRED
Calculate the net wage of each new employee for the week, showing all detailed
information.
Reviewed by Miss L.T Zulu (July 2024)
Exercise 2
Nomzamo Ndlovu works in the machine shop of a small engineering firm. The normal
hours laid down are 40 hrs per week. During the week ended 23 May 2020 he had
worked 50 hours as follows:
Saturday 4 hours
Sunday 4 hours
Monday 8 hours
Tuesday 10 hours
Wednesday 8 hours
Thursday 8 hours
Friday 8 hours
The company pays time and a half for normal overtime and double time for Sundays and
Public Holidays. From his employee card, it is noted that Nomzamo’s current wage rate is
R 4,50 per hour; she pays 5% of his basic wage to a pension fund; 1% of basic wage to
UIF; R 10 per week to a medical aid scheme and PAYE amounts to 10%.
REQUIRED
Calculate the net wage payable to Nomzamo Ndlovu.
Reviewed by Miss L.T Zulu (July 2024)
Exercise 3
Rebecca Ngubane works at Makhosi & Associates. Her normal working hours are from
08:00 to 16:00 and is paid R12.50 per hour. She works from Monday to Friday. She works
40 hours a week. For normal overtime, the rate is time and a half and for Sundays and
public holidays, it is double the rate.
* Pension fund 5 % of normal/basic wage
* Medical aid R 50 per week
* U.I.F 2 % of gross wages
* P.A.Y.E 10 %
The following information relates to her for the week ended 25 April 2020:
Monday 08:00 - 16:00
Tuesday 08:00 - 16:00
Wednesday 08:00 - 17:00
Thursday 08:00 - 18:00
Friday 08:00 - 16:00
Saturday 09:00 - 12:00
Sunday 10:00 - 16:00
REQUIRED
Calculate Rebecca Ngubane’s net wage.
Reviewed by Miss L.T Zulu (July 2024)
Exercise 4
De-ja Vu CC employees 4 staff. The following information has been recorded for the week
ended 15 February 2020:
Employee Gross salary Medical aid UIF PAYE
N Balalaka R 25 500 R 720 R 127.50 R 2 142.15
A Andries R 39 000 R 960 R 195.00 R 4 343.10
C Ngubane R 31 500 R 840 R 157.50 R 2 757.00
D Gwala R 33 000 R 750 R 187.50 R 2 868.00
An amount equal to 6% of gross salary is deducted from the salaries of employees for the
pension fund. De-ja Vu CC contributes an amount equal to the pension fund. De-ja Vu CC
contributes equally to the UIF in respect of the amount deducted from each employee for
unemployment insurance.
REQUIRED
Prepare the Salaries Journal of De-ja Vu CC for the month ended 29 February 2020.
Reviewed by Miss L.T Zulu (July 2024)
Exercise 5
All the staff at Zanadoo Traders are members of a pension fund and a medical aid scheme.
Pension fund contributions are given below. Zanadoo Traders contributes R1.25 for
every R 1 contributed by the employees. The contribution of Zanadoo Traders towards
the unemployment fund is equal to that amount contributed by each employee.
Normal overtime is 11/2 times the basic wage rate, while Double overtime is twice
the basic wage rate.
The information relating to the week of 1 February 2020.
Employee Normal time Normal rate Normal Double
per hour Overtime overtime
L Radebe 40 R 28 8 2
Z Vilakazi 40 R 32 5 5
S Piennaar 40 R 30 7 7
The deductions are as follows:
Employee Pension Medical aid UIF PAYE
Fund
L Radebe R 52.80 R 15.00 R 3.30 R 75.96
Z Vilakazi R 62.40 R 21.00 R 3.90 R 123.33
S Piennaar R 57.60 R 13.50 R 3.60 R 68.31
REQUIRED
Prepare the Wages Journal of Zanadoo Traders for the week ending 1 February 2020.
Reviewed by Miss L.T Zulu (July 2024)
