By: Rob Cooper tax expert at Sage, and independent labour economist, Andrew Levy
South Africa’s national minimum wage legislation came into effect on 1 January 2019, setting the minimum wage at R18 per hour for farmworkers, R15 per hour for domestic workers and R20 per hour across most other sectors of the economy.
The Commission for Conciliation, Mediation and Arbitration (CCMA) is already facing a flood of disputes between employers and employees about the new minimum wage, which indicates that many companies do not yet fully understand their obligations under the law.
With this article, we hope to dispel some of the fog and to help companies of all sizes ensure that they are in full compliance with the requirements of the national minimum wage.
Every employer must familiarise itself with the law since ignorance will not be accepted as an excuse
The National Minimum Wage is applicable to many so-called independent contractors
The National Minimum Wage Act does not confine itself to employers and employees as defined in the Basic Conditions of Employment Act. It expands the definition of an employer to mean “any person who is obliged to pay a worker for the work that that worker performs for that person” and of a worker to encompass “any person who works for another and who receives, or is entitled to receive, any payment for that work whether in money or in kind”.
The intention of the law is clear: it is meant to prevent employers from shifting to hiring ‘contractors’ to avoid meeting the requirements of the minimum wage.
The legal specifics are technical — and we discuss them in detail in our National Minimum Wage handbook and seminars — but the bottom-line is that someone who is an independent contractor and not an employee under other laws could be regarded as a worker for the purposes of the minimum wage.
These conclusions may yet be tested in the courts. But until then, we recommend that employers ensure that their individual contractors, casual part-timers and others not under a formal employment contract earn at least the hourly national minimum wage for the work they do—in other words, they should check that the amount paid for the hours worked is at least R20 per hour.
The penalties for non-compliance are steep
The CCMA may impose a fine that is the greater amount of twice the value of the underpayment and twice the employee’s monthly wage on companies that do not comply with the Minimum Wage. Non-compliant employers may also be named and shamed in a quarterly publication of all employers that were instructed to comply with the National Minimum Wage—this will be posted on the Department of Labour website.
Employees and trade unions will be vigilant in ensuring that employers pay the national minimum wage. This will most likely be the primary means of enforcement, although examination of pay records to ensure the correct amount is being paid will also be an automatic check for all labour inspectors.
Minimum wage and the Employment Tax Incentive Act
The Employment Tax Incentive Act (the ETI Act) came into effect on 1 January 2014 and President Cyril Ramaphosa announced that it will be extended for another decade in his State of the Nation Address earlier last week.
According to the Act, the employer must pay a wage in each month that is not less than “the amount payable by virtue of a wage regulating measure” for an employee to qualify to generate the tax incentive for the employer.
Wage regulating measures (such as Sectoral Determinations) always specify an hourly minimum rate, and some also specify a monthly and/or a weekly minimum wage. If payroll systems and employers apply the hourly minimum wage rate specified by the wage regulating measure, they will be in compliance.
However, the Act also specifies that a monthly minimum wage of R2 000 must be applied if there is no wage regulating measure. This section does not provide for the minimum wage to be validated against an hourly wage rate, while the National Minimum Wage is applied on an hourly basis.
We hope to hear something in the Budget Speech this year—aligning the ETI with the National Minimum Wage will make administration simpler for employers. However, for now, employers should be mindful of complying with both the ETI Act and National Minimum Wage Act.
The National Minimum Wage has been in gestation for many years, and should be welcomed by labour and business alike as a step towards greater social justice. Though we can expect some confusion in the shorter term as a result of its interaction with other tax and labour laws, implementation should be smooth for most employers. In the meantime, every employer must familiarise itself with the law since ignorance will not be accepted as an excuse.