Remuneration
Employee contributions and their effect on pay
Employee contributions are the amounts an employee funds from their own remuneration. They reduce take-home pay, and several of them also reduce taxable income — which is why net pay rarely moves rand-for-rand with a contribution change.
The main employee contributions
- Retirement fund contributions to a pension, provident or retirement annuity fund
- Medical scheme contributions, including the employee portion of any employer-subsidised premium
- The employee UIF contribution
- Group risk premiums where the employee funds part of the cover
- Union subscriptions and bargaining council levies where applicable
Tax treatment
Retirement fund contributions are deductible within the limits set by the Income Tax Act, so an increase in contribution reduces taxable income and partly offsets the reduction in cash. Medical scheme membership generates tax credits rather than a deduction of the contribution itself.
Contributions versus employer contributions
Employee contributions come out of the employee's pay; employer contributions are an additional cost to the employer, covered under employer cost. Both must be reported separately in payroll and on the tax certificate.
Effect on net pay
Because deductions and tax interact, modelling matters. The Net Pay Simulator (NPS) shows the real net-pay effect of changing a contribution rate before an employee commits to it.
Frequently asked questions
What are employee contributions in payroll?
Amounts deducted from an employee's remuneration to fund benefits and statutory schemes, such as retirement fund and medical scheme contributions and the employee UIF contribution.
Do retirement contributions reduce my tax?
Yes, within the deduction limits set by the Income Tax Act. Contributions above those limits are not deductible in that year but are carried forward for future tax purposes.
Are medical scheme contributions tax deductible?
Medical scheme contributions generate medical scheme fees tax credits, which reduce tax payable directly rather than reducing taxable income.
Why did my net pay change by less than my contribution increase?
Because a deductible contribution lowers taxable income, so part of the increase is offset by a reduction in PAYE.
See the exact net-pay effect of a retirement or medical contribution change with the Net Pay Simulator.
Explore NPSRelated services
- Employee benefits administration →
Medical aid, retirement funds, group risk and allowances administered through payroll.
- Payroll processing →
Monthly and weekly payroll processing, calculations, payslips and statutory deductions.
- Third-party payments →
Garnishees, medical aid, retirement funds, unions and councils paid from accurate schedules.
Related topics
- Net pay →
How take-home pay is derived from gross remuneration, deductions and tax.
- Employer cost →
The true cost of employment: contributions, statutory levies and cost beyond the salary line.
- Statutory deductions →
The full deduction hierarchy: what employers may deduct, in what order and within what limits.
- Benefits & allowances →
Travel, cellphone, medical, retirement and other package components and their treatment.
Related insights
- Employer cost vs net pay →
Why the employer's cost and the employee's take-home differ so widely.
- Net Pay Simulator (NPS) →
Remuneration and net-pay intelligence.