How to Save More By Restructuring Your Salary
Being in the debt counselling business we are constantly on the lookout for saving solutions for our customers, but did you know that you are within your rights to demand a salary package from your employer that is structured in such a way that it benefits you? In a climate of credit rating downgrades and low economic growth, South Africans need to take heed of shrewd saving tips and save wherever possible.
It’s no secret that this country is notoriously bad at saving when compared to other nations. The average citizen only saves 8% of their annual income, which should be 20% or more if they plan on retiring comfortably one day. As a country, we only save 15.4% of our GDP which can be attributed to lower salaries and our high cost of living; but the Chinese manage to save over 50% of theirs, even though they earn a lower wage on average. South Africans need to be educated about the importance of saving, change their mindset, and free themselves of debt by seeking debt advice and avoiding reckless lending practices.
Back in 2017, the Supreme Court of Appeal ruled that it is legal to restructure your salary and permit a salary sacrifice, as long as documentation exists to prove the salary structure was agreed between the employer and employee. According to tax and benefit specialist, Tanya Tosen, employees can opt to have unwanted benefits and allowances removed from their salaries, which not only benefits them as they will have access to freed-up cash but also their company, who can now make better use of their budgets and give their employees what they want.
Managing Partner of Tax Consulting South Africa, Jerry Botha, agrees that some companies prefer to offer this option to their employees, as they have not had the budget to give employees increases in the current tough economic climate. He goes on to say that if employees are prudent and use the freed-up money to pay off a bond or settle their debts by engaging in a comprehensive debt review, restructuring a salary package could have great financial benefits. Andrew Wellstead (Head of Tax at Norton Rose Fulbright South Africa) agrees that a salary restructure would give employees the flexibility to assign their salary to whichever area they feel would benefit most from the extra cash-injection. He goes on to say that “An employee should structure their salary in such a way that their benefits – for example, retirement savings, medical aid and group life needs – meet their lifestyle demands’’. But Wellstead warns against this being used as a tax liability reduction strategy.
The South African Revenue Service (SARS) has in recent years tightened legislation so that any money earned from working, be it a salary or fringe benefit, will form part of an employee’s remuneration which will be incorporated in taxable income. Deductions such as PAYE, UIF and Skills Development Levy are also compulsory by law, and cannot be varied.
Clearing your debt by engaging in debt consolidation will save you a lot of money in the long run. And according to the South African Savings Institute, a salary restructure could be another way to boost your savings by choosing to be paid a lower salary during the year, with the savings portion being paid as a bonus at year-end.