One of Islams tenets zakat is required of all Muslims who fit the requirements. In addition to purifying material wealth zakat also purifies the heart and draws one nearer to Allah ﷻ. Because monthly income must be carefully calculated to determine whether it has reached the nisab (minimum threshold of wealth subject to zakat) and haul (ownership period of one lunar year) employees may find it difficult to fulfill zakat. In addition to general guidelines and examples of calculations, This article will cover how to calculate zakat for employees and provide evidence from the Quran and Hadith.
Zakat: What is it?
The term zaka زكى(growth purity and blessing) is the root of the word zakat. According to Islamic law a Muslim is required to give zakat or a portion of wealth to the rightful recipients (mustahik) under specific circumstances. Zakat seeks to establish social justice assist the poor and purify wealth. It is stated in the Quran by Allah ﷻ:
Take a sadaqah(zakat) of their wealth to clean and pure them (Surah At-Taubah: 103).
Which Assets Are Included in Zakat for Employee?
Zakat applies to other assets and sources of income in addition to your monthly salary as an employee. These consist of savings (money kept at home or in a bank), investments (gold, silver, stocks, mutual funds, sukuk or Islamic deposits), side hustle income (extra money earned from side gigs like trading or consulting) and other assets like inheritances or gifts that fit the requirements for zakat. Property and car are not included in zakat for employee.
Also read:Understanding Corporate Zakat: Insights from the MUI Fatwa Commission
The General Rules of Zakat for Employee
Only assets that fulfill certain requirements are subject to zakat obligations. The first requirement is that the asset must meet the nisab, the lowest amount of wealth that is subject to zakat. The nisab is worth 85 grams of gold in any currency valuation related to a person. Secondly, the asset must be owned for a haul or one lunar (Hijri) year. Third, the person must possess and have complete control over the asset. Zakat which is 2.5% of total wealth becomes mandatory if these requirements are satisfied.
The Employee Zakat Calculation Process
Employees zakat is calculated by adding up all of their assets and income then subtracting any necessary debts and expenses. Begin by figuring out all of your assets and income including your savings, investments in stocks, mutual funds, gold, sukuk and side income in addition to your monthly salary. Next subtract any short-term debts and daily necessities from your monthly expenses. Check to see if the result of the calculation have reached the nisab and have been owned for a full lunar year after subtracting these costs. Should they do so you will have to pay zakat at a rate of 2.5% of your total money.
Also read:Corporate Zakat According to AAOIFI
Zakat on Investments and Other Assets
- Gold and Silver: If the amount of gold or silver and other assets reaches the nisab, it must be zakatable.
- Sharia-Compliant Stocks:
• Zakat on stocks used for trading is 2.5% of their market value.
• If the company does not pay zakat on its business, stocks held for long-term investment (not for trading) must be zakatable.
• According to the AAOIFI method for calculating zakat on companies, the following formula is used for long-term investment stocks:
(Current assets + long-term receivables + long-term inventory – current liabilities) x duration of stock ownership based on the report for 1 year x percentage of stock ownership.
However, due to the complexity of this calculation, it is better to calculate zakat on long-term investment stocks based on their market value for simplicity. - Sharia-Compliant Mutual Funds:
• Zakat on mutual funds is calculated by determining zakat for each asset in the portfolio and then multiplying it by the percentage of that asset. This is quite complex.
• It is easier to calculate zakat on mutual funds using the Net Asset Value (NAB) due to the difficulty of the aforementioned method.
• Zakat is not obligatory on mutual funds if the fund’s management includes a zakat clause. - Sukuk:
• For sukuk ijarah, only the investment growth is subject to zakat.
• Sukuk mudharabah or musyarakah are zakatable like stocks.
Also read:Investment as a Shar’i Way to Reduce Zakat, How is it Related?
Example of Zakat Calculation for Employees
An example of zakat calculation for an employee is as follows:
When reaching the haul period, Bagus has the following sources of income (in Rupiah):
- Monthly salary: 125 million
- Side income as a tax consultant per month: 100 million
- Monthly expenses: 50 million
- Savings from the previous year:
a. Cash: 1 billion
b. Gold bars: 200 grams
d. Sharia-compliant deposit (+ return): 1.5 billion
e. Sharia-compliant stocks: 400 million
f. Value of Sharia-compliant mutual funds: 240 million
The zakat for Bagus, with the price of gold at 1,700,000 per gram, is calculated as follows (in millions of Rupiah):
Calculation of monthly income and expenses:
100+125−50=175 million
Value of gold:
1.7×200=340 million
Total assets:
(175×12)+1000+340+1500+400+240=2100+1000+340+1500+400+240=6080 million
Final zakat calculation:
6080×2.5%=152 million Rupiah
Also read:Finish Poverty with Zakat: How to do it?
Conclusion
Calculating zakat for employees is not limited to just salary but also includes savings, investments (such as mutual funds, stocks, and sukuk), side hustles, and other assets. Make sure to deduct expenses, combine all sources of income, and check if your assets meet the nisab and haul. If they do, pay zakat at 2.5% of your total wealth. May this explanation help you fulfill your zakat obligations correctly. Remember, zakat not only purifies your wealth but also purifies your heart and brings you closer to Allah ﷻ.
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References
- Almanhaj. (n.d.). Summary of zakat fiqh. Retrieved from https://almanhaj.or.id/136870-ringkasan-fiqih-zakat.html
- National Zakat Agency (BAZNAS). (n.d.). Zakat on shares. Retrieved from https://baznas.go.id/zakatsaham
- Zakat Foundation of America. (n.d.). Calculate zakat on stocks and investments. Retrieved from https://www.zakat.org/calculate-zakat-on-stocks-and-investments
- Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). (2017). Sharia standards. Manama, Bahrain: AAOIFI.