Salaries (Grade 10 NSC Matric Accounting): Revision Notes
Salaries
Introduction to salaries and wages
In financial accounting, businesses need to record payments to their employees. When a business has multiple employees, proper journals must be prepared to track these payments accurately. There are two main types of employee payment structures:
- Salaries: Paid to permanent employees at the end of each month
- Wages: Paid to workers on a weekly basis
A Salary Journal records the amounts each salaried employee will receive monthly, while a Wages Journal tracks weekly payments to workers. Understanding the difference between these payment types is essential for proper accounting records.
Key definitions
Before diving into salaries, let's clarify important terms:
- Employer: A person or business that provides employment to others
- Employee: A person who works for a business
Understanding salaries
A salary is a fixed amount of money paid to a permanent employee at the end of each month. Salaried employees typically hold permanent positions within the business and receive consistent monthly payments throughout the year.
How salaries are structured
When an employer hires a salaried employee, they agree on an annual salary. This total yearly amount is then divided by 12 to determine the employee's monthly salary. The calculation is straightforward:
Calculation Example:
If an employee's annual salary is R96,000, their monthly salary would be:
Salary scales and notches
Salaried employees are often appointed at a specific notch or scale. A salary scale shows the progression of salary increases over time. The scale indicates:
- The starting salary amount
- Annual increment amounts (the increase each year)
- The maximum salary in that position
Understanding Salary Scale Format
Salary scales are written in a specific format. For example: 96,000 x 6,000 – 108,000 x 9,000 – 126,000
This means:
- Starting salary: R96,000
- First increment: R6,000 annually
- Next level: R108,000
- Second increment: R9,000 annually
- Maximum salary: R126,000
Additional salary payments
Thirteenth cheque
A thirteenth cheque is a special payment that some employees receive, equivalent to one month's salary. As the name suggests, employees receive 13 payments in a year instead of 12. The employer determines whether employees qualify for this benefit, and it's typically paid at the end of the year.
Bonuses
A bonus is an extra payment determined by the employer, usually calculated as a percentage of the employee's salary. Unlike the thirteenth cheque (which equals one full month's salary), a bonus can be any amount the employer decides. Bonuses are often awarded based on performance or company profits.
Key Difference:
- Thirteenth cheque = Exactly one month's salary (fixed amount)
- Bonus = Variable percentage determined by the employer
Worked example: salary scale calculations
Worked Example: R. Smit's Salary Progression
Let's look at how R. Smit's salary progresses over five years based on this salary scale:
96,000 x 6,000 – 108,000 x 9,000 – 126,000
Year 1: Starting salary
Year 2: R96,000 + R6,000 (increment) = R102,000
Year 3: R102,000 + R6,000 = R108,000
Year 4: R108,000 + R9,000 (new increment amount) = R117,000
Year 5: R117,000 + R9,000 = R126,000
Notice how the increment changes from R6,000 to R9,000 once the salary reaches R108,000. This demonstrates how salary scales can have different increment amounts at different levels.
Important accounting terms
Understanding these terms will help with salary-related accounting:
| Term | Definition |
|---|---|
| SETA | Sector Education and Training Authority - an organisation that manages skills development |
| SITE | Standard Income Tax on Employees - tax deducted from employee salaries |
| Unemployment Insurance Fund | The employer's contribution to protect employees in case of job loss |
Exam Tips:
- Always check whether you're working with an annual or monthly salary figure
- Remember to divide annual salary by 12 to get monthly salary
- Pay attention to when increment amounts change in salary scales
- A thirteenth cheque equals exactly one month's salary
- Bonuses are percentages and must be calculated accordingly
- Show all your working in calculations - marks are awarded for method
Key Points to Remember:
- Salaries are paid monthly to permanent employees, while wages are paid weekly to workers
- Calculate monthly salary by dividing the annual salary by 12:
- Salary scales show progression - employees move up notches with annual increments
- Thirteenth cheque equals one month's salary - it's a fixed amount, not a percentage
- Bonuses are variable - the employer determines the percentage based on various factors
- Keep track of increment changes - some salary scales have different increment amounts at different levels