When quantifying the earnings of an individual at the time of a delict (i.e a road accident or any other relevant incident), the starting point is the analysis of the individual’s earnings at the time of the delict. A useful and reliable source of such information is the individual’s payslip. This will usually have the following items:
- Gross remuneration i.e basic salary and other allowances/benefits
- Deductions
- Company Contributions/Fringe benefits
- Year-to-date figures
- Other relevant information e.g date of joining the company and notch level for government employees
For quantum purposes, an individual’s total earnings are used and not just the basic salary. Analyzing the payslip allows actuaries to identify the following aspects that might be ignored by merely quoting one’s basic salary, which could potentially provide a realistic picture of the individual’s total earnings:
- Other allowances/benefits over and above the basic salary e.g overtime, holiday pay, housing allowance.
- Fringe benefits provided by the employer e.g medical aid.
- Bonuses e.g production bonuses, 13th cheques.
- Tax deductible pension/provident fund contributions. This reduces the tax rates applied to future annual income, increasing the post-tax values for the individual
- Medical aid tax credits. Tax credits reduce the tax amount on future annual income, increasing post-tax values.
- If the individual was a government employee or not. Government employees have standardized benefit structures that need to be taken into account when doing loss of income calculations.
For illustrative purposes, consider Jabu who earns a basic salary of R8 000 but has the following benefits according to his payslip:
- Overtime: R300 average per month
- Medical Aid subsidy: R700 per month
- Transport Allowance: R400 per month
- Provident fund contributions: 7.5 % of basic salary (employee) and 10% of basic salary (employer)
- Medical Aid Tax Credits for 2 Adults
- 13th cheque: 1 month’s basic salary of R8 000
Based on the basic salary only, his annual income would be R96 000 of which 100% is taxable.
Based on the breakdown given above his annual income would amount to:
(R8 000 + R300 + R700+ R400) x 12 + R8 000 = R120 800
Also, the taxable amount will be less than 100% as a total of 17.5 % of the basic salary is taxable.
Lastly, he would qualify for tax credits of around R694 per month (2022/23 tax year).
The combined effect of using the payslip in this example was to increase the earnings of the individual and reduce the burden of tax on those earnings.
This breakdown reflects the importance of scrutinising the deceased’s income, inclusive of extra income and benefits, to understand and project his/her future earning potential.
