The National Minimum Wage (NMW) is the minimum amount that someone may be paid for work done, as defined by law. Traditionally, in South Africa, the rate has depended on area of work, and type of job, and has been determined by the work sector, or industrial councils led by unions. This has allowed a level of flexibility in business (and at home), as well as leading to regular strike action as workers demand higher pay.

In February this year, Deputy President Cyril Ramaphosa signed the agreement for a new national minimum wage of R20 per hour (which translates to about R3500 per month for people working a 40 hour week, and R3900 for those working 45 hours per week). This is due to come into effect on 1st May, 2018, on Workers Day. The law around this is not yet finalised, and exact details on how it is to be implemented are still to be ironed out.

What does the national minimum wage mean? And why is there a fuss about it?

There are an estimated 6.6 million people in South Africa currently earning less than R20 per hour. Statistics show that about 1 million of these people are domestic workers and another 500 000 work in the agricultural sector. According to the recommendation report for a national minimum wage, over 51% of the people in our country earn less than R3 700 per month. Our unemployment rate is officially 26.7%, and over 36% if one also takes into account the number of people who have given up looking for employment (interestingly, the people at the very bottom of our earnings picture are overwhelmingly women).

Our “survival line” basic cost of living for a family of 4 is R5 500 per month, so an increase in the minimum wage will have a dramatic effect on these breadwinners. Good news, right?

It does seem to be. But one has also to take into account whether some of the “low level” employers will be able to make the transition to the new hourly wage. What if the business, farm or household can’t afford to increase their hourly rate? If they can’t, introducing the minimum wage may result in job losses, as smaller businesses, farms and domestic employers may not be able to carry the additional financial load.

Particularly in the domestic and farm environments employees typically receive additional benefits in the form of housing and food. It is completely possible that these benefits will be reduced in order to be able to afford the R20 per hour. In this case, it is questionable as to whether the employee gains overall.

It has been agreed that initially domestic workers may be paid 75% of the NMW, and farm workers 90%. It is also understood that there will be exemptions allowed, as well as incentives which may assist the struggling entity to afford the minimum wage. These exemptions will be valid for 12 months, and re-application for them will be required, in the event that after 12 months they are still necessary. It is expected, in these cases, that the employer’s goal within 2 years is to achieve the minimum wage within a set period of time.

We also have questions about how this impacts learners and interns who typically earn less than the minimum wage during their internship period? The stipends paid for unemployed learners is recommended by the Sector Training and Education Authorities, and it is uncertain how this will be impacted, given that training is paid for through the 1% Skills Development Levy, calculated on payroll.

 There will also be an impact on youth being employed because of the Employment Tax Incentive given to companies. The ETI incentive refunds a PAYE paying employer a maximum of R1 000 per month for qualifying workers earning between R2 000 and R4 000. Since at the lower levels these earnings reflect less than the minimum wage, it seems reasonable to assume that either the ETI payments will have to be increased (adding stress to an already stressed national fiscus) or ETI employees would have to be exempt from the minimum wage laws.

It has been made clear that bargaining council agreements must, as their minimum, reflect the NMW should their current minimum be less than R20 per hour. However, they may not adjust their minimum’s downward to match the minimum NMW should their current minimum be more than this amount.

It is planned that the NMW will be reviewed periodically and revised annually by an advisory panel, taking into account socioeconomic conditions, cost of living and minimum living expenses, alleviation of poverty, GDP growth and a number of other factors, always ensuring sustainability.

Its possible that the introduction of the national minimum wage will stimulate parts of the economy by removing the possibility of unfairly competitive pricing due to paying extremely low wages. It is hoped that the move will ensure that people are fairly paid for their labour. Should all employers be able to continue paying any benefits they currently offer, and increase their minimum wages to the desired R20 per hour, clearly this will assist all households subsisting on the lowest income levels. However, it would seem that there is a real risk that there will be people losing their jobs because of the introduction of this law, which is exactly what our country cannot afford. And clarity is required regarding introduction of the NMW along side the other employment incentives which are in use by business, i.e. ETI, learnerships and internships. The 1st May 2018 is just around the corner. Will we have answers by then?



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References:

A National Minimum Wage for South Africa – Recommendations on Policy and Implementation – National Minimum Wage Panel Report to the Deputy President:

http://www.treasury.gov.za/publications/other/NMW%...

http://www.fin24.com/Economy/minimum-wage-could-le...

http://www.fin24.com/Economy/Labour/infographic-ho...

http://www.labour.gov.za/DOL/downloads/documents/u...

https://www.dailymaverick.co.za/opinionista/2017-0...