National minimum wage may seem clear, but many questions still linger
Three years ago the ANC undertook to introduce a national minimum wage with the objective of reducing inequality and poverty. This decision led to the deputy president chairing a lengthy process within the tripartite National Economic Development and Labour Council (Nedlac), with input from a panel of experts.
In February an agreement was reached about key features of the national minimum wage: it will be introduced in a dedicated law by May 1 2018; a rate of R20 an hour was agreed; and a new body, the National Minimum Wage Commission (NMWC), will be established to review the rate annually.
However, the national minimum wage will be introduced in the context of an existing framework of labour legislation that includes wage-setting mechanisms. Decisions must be made about how it fits into this framework.
In this regard the February agreement states only that "all sectoral determinations, collective agreements, bargaining council agreements and individual contracts of employment must comply with the National Minimum Wage Act at the time of implementation, that is, their minima must be no lower than the national minimum wage floor… " But this creates more questions than answers, and the details will strongly influence the effect the measure has.
One principle of national minimum wages is universality: it should preferably cover everybody. The starting point in terms of labour legislation is the definition of an employee. However, the definitions in the Labour Relations Act and the Basic Conditions of Employment Act exclude independent contractors (self-employed individuals doing a job of work for someone else). Changes in the world of work are making this exclusion increasingly problematic and it will provide unscrupulous employers with a loophole for voiding the national minimum wage. Consideration should therefore be given to widening the definition in the new act to include independent contractors.
Some sectoral determinations have already taken this step. For example, the domestic work determination explicitly includes independent contractors doing domestic work. Furthermore, the Basic Conditions of Employment Act gives the labour minister the power to extend the coverage of such determinations to regulate domestic work, contract work and subcontracting. These precedents suggest that the time might be right to ensure all workers enjoy at least the R20 an hour minimum pay.
If the R20 national minimum wage is defined as remuneration, the wage component of what workers take home could be well below R20 an hour
A national minimum wage of R20 an hour appears to be straightforward, but it raises quite complicated questions: are overtime, commission, tips and bonuses included in the R20, and can one make deductions for the Unemployment Insurance Fund (UIF), a pension fund and union subscriptions from the R20? The February agreement sheds no light on this issue and the Basic Conditions of Employment Act provides limited assistance.
The latter act makes a distinction between "wage" and "remuneration". A wage is the payment an employee receives for ordinary hours worked, for example, if a worker is paid R20 an hour and works a 45-hour week, the weekly wage is R900. It does not include overtime, a shift work allowance or a car allowance. However, deductions for UIF, a pension fund and union subscriptions can be included in the wage, and therefore may be deducted, so the worker will take home marginally less than R900 a week.
Remuneration, on the other hand, would include all these other payments, such as a car allowance, as well as in-kind benefits such as accommodation and meals. If the R20 national minimum wage is defined as remuneration, the wage component of what workers take home could be well below R20 an hour.
The issue is further complicated if you consider that R20 could also refer to the net wage. This would mean the worker should be taking home the full R20 after all deductions and excluding other (nonwage) payments.
So, there are three options: the net wage, the Basic Conditions of Employment Act wage definition (which would allow for deductions that are "required or permitted in terms of a law, collective agreement, court order or arbitration award" such as UIF and union subscriptions), or a gross wage (remuneration).
Simplicity is the main consideration when making this choice, as well as the need to protect the intended minimum rate for workers. So we need to decide which option will be best understood by employers and employees and will be most easily enforced. Arguably it should be the wage as defined in the Basic Conditions of Employment Act with the deductions allowed by that act.
The February agreement records that a new body, the NMWC, will be established and will adjust the national minimum wage annually. It is stated elsewhere that the minimum will be reviewed periodically, but it does not indicate who will do the reviews. Presumably, the intention is that the commission will review the level annually and make a recommendation regarding its adjustment. The question then is: who or which body will make the decision about adjusting the national minimum wage?
The Basic Conditions of Employment Act sets out a process for introducing new sectoral determinations and reviewing existing ones. The Department of Labour has a role, as does the Employment Conditions Commission, which makes a recommendation to the minister. It seems the intention is that the NMWC will take over the functions of both the department and the commission in the revision of the national minimum wage. It will therefore conduct research and examine evidence, and make a recommendation regarding adjustment. But will the minister on her own make the decision about adjusting the minimum wage?
Problematically, other "sectors" seem to have been ignored. Learnerships, which cut across sectors, are regulated by a sectoral determination
Arguably, the national minimum wage is much more important and has wider implications than a sectoral determination. This is reflected in the lengthy negotiation process to introduce it. Why should the adjustment of the minimum wage be any less important?
The adjustment of the wage is bigger than one minister. It should be decided by a panel of ministers who are directly implicated, such as trade and industry, agriculture, social welfare, public works, higher education and training, and finance. But there need to be checks and balances. The recommendation of business, labour and experts, via the NMWC, must carry weight that cannot easily be discounted by the ministerial collective. The panel’s focus should be on policy co-ordination and oversight rather than to review the recommendation.
The February agreement indicates that domestic workers and farm workers will initially be allowed to be paid a lower rate than R20 an hour— R15 and R18, respectively — and will be phased into the national minimum wage over two years.
A roadshow by the Department of Labour indicated that the Expanded Public Works Programme would also be excluded, although the February agreement states that the social partners must still consider this issue. It is unclear why the department would advocate total exclusion. The previous deputy director-general of the Treasury stated that the cost of phasing the national minimum wage into the Expanded Public Works Programme by 2019 would be "modest". So there seems no reason why it cannot be included in much the same way as the domestic and farming sectors.
Problematically, other "sectors" seem to have been ignored. Learnerships, which cut across sectors, are regulated by a sectoral determination. The wages it stipulates vary according to National Qualifications Framework level and number of credits, and are for the most part below the proposed R20 per hour. Similarly, the eligibility threshold for a subsidy in terms of the Employment Tax Incentive Act (commonly referred to as the youth wage subsidy) is well below the national minimum wage. Clearly consideration needs to be given as to how to include these employees.
The February agreement states that the national minimum wage will set an absolute floor that will amend all wage-regulating measures, including sectoral determinations. And, seemingly, the NMWC will replace the Employment Conditions Commission.
Sectoral determinations will have to be retained, including a procedure for their introduction and continued revision. They are introduced in sectors where union organisation is weak and little or no collective bargaining takes place. They provide for variation on the minimum conditions in the Basic Conditions of Employment Act to suit unique circumstances in sectors (for instance, the farming and domestic work determinations have provisions dealing with workers living in accommodation provided by the employer). And they provide wage schedules — minimum wages for multiple occupational ranks in a sector. The need for such measures will not change with the introduction of a national minimum wage.
The new NMWC should therefore take over the functions of the Employment Conditions Commission so that the nonwage provisions in sectoral determinations will be retained, as well as a procedure for reviewing and updating the wage schedules. This will ensure the determinations remain a key part of the system of flexible labour market regulation on a floor of minimum standards, and the new commission will be able to develop a co-ordinated wage policy for SA’s labour market.
Strangely, it appears the department has not adopted this approach. In its roadshow it indicated that wages in sectoral determinations that are above the national minimum wage and other customised conditions for sectors will become schedules (essentially appendices) to the Basic Conditions of Employment Act, but without any procedure to review them. The implication is that these conditions will be fixed in stone and the minimum wages will become irrelevant within a few years.
It is likely that the social partners in Nedlac have considered some of the above questions but they still have a lot of work to do to produce answers if the national minimum wage is to be ready for implementation by May 1 2018.
• Godfrey is the co-ordinator of and Jacobs a researcher at the University of Cape Town’s labour and enterprise policy research group.