Most people make their biggest recurring financial decision by saying yes to a job. The employer can usually tell you, to the cent, what you cost them. The person accepting the offer often has a salary figure and a hopeful feeling.
This article works through what stands between the two, using South African rules for the 2024/25 tax year and a synthetic offer. The offer is invented, and everything in it can be re-derived.
What economics tells you to expect, and where it fails
Economists have a tidy theory for the unattractive features of a job: they are compensated. Adam Smith made the argument in The Wealth of Nations, and modern labour economics calls it compensating differentials. A long commute, an unpleasant place or an insecure contract should be paid for in the wage, or in cheaper housing.
The test of that theory on commuting is not kind to it. Stutzer and Frey, using German panel data, found that people with longer commutes reported systematically lower subjective well-being, and they called the gap between theory and result the commuting paradox.1 They tested a number of alternative explanations and the result held. The practical reading is cautious: do not assume that an offer's pay has already priced in what the job costs you. Price it yourself.
From the headline figure to what is left
Take a data engineer on a cash gross of R780,000 a year, in the 2024/25 tax year. These are the steps, and each one is a published rule or a stated assumption.
- Tax. South Africa's 2024/25 individual rates run from 18% on the first R237,100 to 45% above R1,817,000, with a primary rebate of R17,235.2 After a retirement deduction, taxable income in this example is R751,500. The bracket tax is R179,147 plus 39% of the amount above R673,000, which is R209,762. Less the rebate and an R8,736 medical credit, PAYE is R183,791.
- UIF and retirement. UIF at 1% to the monthly ceiling is R2,125 for the year, and the employee's retirement contribution is R58,500. Net after tax: R535,584.
- Costs of holding the job. Commuting 20 km each way at R3.50 a km is R22,176 a year. Add vehicle depreciation and running costs, professional clothing, technology, housing, school fees and debt service, and the mandatory costs come to R259,076.
- Lifestyle costs of R108,000 leave a cash surplus of R168,508.
- Time. The commute and 240 hours of unpaid overtime are not free. Priced at a stated weight, they take a further R80,338, leaving a true surplus of R88,170.
A package of R780,000 became R88,170 of real room to move, and the true hourly rate came out at about R232 against R279 on the contract. Nothing here is an error. It is arithmetic that most offers never show.
What the arithmetic cannot decide
In the specimen this offer reads "caution", for two reasons that can be named: emergency-fund cover of zero months against a line of three, and an effective margin of 9.9% against a line of 15%. Two other things matter as much as the reading. No single input flipped it when moved by 20%, and it held in all 200 simulated variations. That is a statement about conditions. It does not tell the candidate what to do, and it should not. The decision, and the weight given to the conditions, is theirs.
What a person can take from it is a list of better questions before signing. How far is the real commute and what does it cost? What would a 10% rise in housing cost do to the margin? How many months could I carry the household if I left in probation? What would have to be different about the package for the reading to change, and is that something I can ask for?
This article is general information and illustrates a method. It is not tax, financial or employment advice. Rates and thresholds change each tax year; check the current year's published tables.