South African employees could see little to no increase in take-home pay

Rising costs, especially medical aid and fuel, could see many South African employees experience little to no increase in take-home pay, or even be worse off.

This is despite inflation-linked tax bracket adjustments in the 2026 Budget, which were broadly welcomed as much-needed relief for South African taxpayers.

However, a closer look reveals that this “relief” may not translate into any meaningful increase in take-home pay. In some cases, employees could even be worse off.

While the 3.4% adjustment to tax brackets aligns with inflation, there is more beneath the surface, said Tax Consulting South Africa’s tax and remuneration specialist, Tanya Tosen.

What appears to be relief on paper is quickly eroded by rising costs. The most notable expense is medical aid contributions.

With medical aid increases averaging 7% to 8% annually, far outpacing the bracket adjustment percentage, any marginal gain could be erased.

These price pressures are only compounded by instability in the Middle East, which is driving global oil prices higher.

For South African employees, this means rising fuel and transport costs, with knock-on increases across goods and services, quickly wiping out any perceived tax relief.

“Employees are under sustained financial pressure with rising living costs,” Tosen said. “Employers need to rethink remuneration strategies and introduce greater flexibility to align with employees’ individual needs and realities.”

During a post-Budget webinar hosted by Tax Consulting South Africa, she said the 2026 adjustment does little to undo the cumulative impact of insufficient or no tax bracket adjustments between 2022 and 2025.

Over time, this has steadily eroded purchasing power, while pushing employees into higher tax brackets as salaries increase – a classic case of so-called ‘bracket creep’.

“I do not think the 2026 inflationary relief is significant when you crunch the numbers. Taxpayers have carried this burden for several years,” Tosen said.

“Human resources and payroll teams need to fully understand the ongoing impact and how it will affect employees going forward.”

The reality is clear – for many employees, the numbers simply are not adding up. Poll results from Tax Consulting South Africa’s post-Budget webinar highlight this sentiment.

Nearly half (48%) of respondents said the tax relief only partially offsets inflation, and 43% believe employees are still losing purchasing power.

Medical aid increases destroy take-home pay

The real impact will become evident in April 2026, particularly for members of the Discovery Health Medical Scheme whose contribution increases take effect on 1 April 2026.

Tosen illustrated this with practical calculations, showing just how quickly tax relief may be eroded in the coming year.

On a certain remuneration package with four members on the Classic Saver plan, an employee might have seen an extra R324 per month in his pocket thanks to tax relief.

However, in reality, they could be R815 worse off due to higher medical aid premiums. On Classic Comprehensive for a family of four, take-home pay could decline by as much as R1,730 per month.

In short, what looks like relief on paper turns out to be a net loss in reality. This growing pressure is not only impacting employees, though.

It also creates a critical and often underestimated risk for employers. In a competitive talent market, even small differences in take-home pay matter.

Employees are increasingly willing to change jobs for as little as R1,000 more per month in net pay, even if it means sacrificing certain benefits.

This dynamic shifts the focus from total cost-to-company to what truly matters to employees – their net take-home pay.

How employees can retain talent without raising costs

According to Tosen, it is now essential for employers to rethink how remuneration is structured if they want to retain their talent pool.

Using various examples, she showed how proactive employers who have incorporated flexibility into their structure can use this to attract and retain talent, while also significantly impacting the employee’s financial position.

Three employees, each earning R75,000 per month, could structure their packages very differently.

A young professional who prioritises cash flow could have a higher cash salary of R69,950 with minimal benefits, while an employee with a young family may prioritise medical and life cover, reducing their cash salary to R64,250.

Meanwhile, a senior employee or executive focusing on retirement and comprehensive cover may have a cash salary of R57,000 per month.

Importantly, Tosen noted that the difference does not lie in the cash salary but in the flexibility of the remuneration structure.

However, despite these rising pressures, most employers among attendees polled said they are not yet taking action –

• 68% has not planned any changes yet
• 18% are reviewing remuneration structures
• 9% plan to introduce or expand flexible benefits
• 6% will absorb some of the cost increases

Tosen said while flexible benefits may not yet be a priority, they represent a significant opportunity. Forward-thinking employers can use this moment to –

• Enhance employee value without increasing payroll costs
• Improve retention through smarter remuneration design
• Help employees maximise tax efficiency and protect their take-home income

She added that organisations that proactively rethink remuneration structure, particularly through flexible benefits, will be better positioned to remain competitive in an increasingly cost-sensitive environment.