Waging War on Bad Wages: The New National Minimum Wage Act

May 28, 2019 | 2019, News

The new National Minimum Wage Act 9 of 2018 (NMWA) has been in the pipeline for quite some time and was finally signed into law by President Cyril Ramaphosa coming, into effect on 01 January 2019. The Act seeks to address unfair labour practices and implements a new minimum wage for the following:

  • Ordinary-hour workers are entitled to R20 per hour. Ordinary working hours are defined in the Basic Conditions of Employment Act 75 of 1997(BCEA). The maximum normal working time allowed is 45 hours weekly.  This is nine hours per day (excluding a lunch break) if the employee works a five-day week, and eight hours per day (excluding a lunch break) if the employee works more than 5 days per week.
  • Farm workers are entitled to a minimum of R18 per hour. Farm workers include a domestic worker employed in a home on a farm or forestry environment and a security guard on a farm or other agricultural premises, but exclude a security guard employed in the private security industry.
  • Domestic workers are entitled to a minimum of R15 per hour. Domestic worker means a worker who performs domestic work in a private household and includes gardeners, household drivers, workers who take care of children, the aged, the sick, the frail or the disabled and domestic workers employed or supplied by employment services.

For most employers this meant a simple amendment to their payroll structure. This was complicated when it was discovered that there erroneously exists a section which makes the Act retrospectively applicable from 01 May 2017. This would mean that any employee being paid less than the minimum wage before 01 January 2019 would have a claim for back-pay from 01 May 2017. Parliament’s Labour Committee has already begun the process of introducing an amendment bill to correct this. The bill is currently in the public comment stage.  The Labour Committee Chair has stressed that the error does not affect the validity and enforceability of the new national minimum wage and employers do still need to comply.

The Act also comes with an exemption clause which allows for flexibility for employers who genuinely cannot afford the new national rates. An employer that genuinely cannot afford the new prescribed minimum may apply in terms of Section 15 of the Act asking the Minister to grant a temporary twelve-month exemption to the prescribed minimum. Exemptions will be considered on a case by case basis and will seek to take into account the interests of the employer in relation to the requirements of the Act.

An exemption will only be granted if the following criteria are satisfied by the applicant employer: the employer cannot afford to pay the national minimum wage; and the representative trade union of the workers has been meaningfully consulted or, if there are no trade union, the affected workers have been meaningfully consulted.

To assess affordability, elements of profitability, liquidity and solvency are taken into account. The decision-making process is rigorous and employers will need to ensure that they submit comprehensive financial and organisational information when applying for exemptions. The exemption is limited and cannot be more than 10% of the prescribed rate in the Act.

Furthermore, a National Minimum Wage Commission will be set up to review the rate each year. The commission will make recommendations to the Minister on any adjustments. The recommendations must consider: inflation, the cost of living and the need to retain the value of the minimum wage; wage levels and collective bargaining outcomes; gross domestic product; productivity; ability of employers to carry on their businesses successfully; the operation of small, medium or micro-enterprises and new enterprises; the likely impact of the recommended adjustment on employment or the creation of employment; and any other relevant factor. The commission will also seek to investigate the effect and impact the Act has on the economy and on the public in general. The findings of the commission will be made available to the public.

NMWA disallows the national minimum wage to be waived and overrides any contrary provision in a contract, collective agreement, sectoral determination or law. Previous minimums set by sectoral determinations will as a result no longer apply. NMWA also affects contracts of employment. Employers will need to amend contracts to constitute terms which reflect the requirements of NMWA unless the existing terms of the contract are more favourable than the prescribed minimums.

NMWA has also sparked amendments to other legislation such as the Basic Conditions of Employment Amendment Bill. The Bill extends the powers of labour inspectors to monitor and enforce compliance with NMWA and also extends the jurisdiction of the CCMA to adjudicate on matters concerning disputes and non-compliance with it. The BCEA amendments also provide for fines for non-compliance with the minimum wage and have also prescribed that any employee who works for less than four hours on any day must be paid for four hours work on that day. The latter only applies to employees earning below the earning threshold set by the Minister.

NMWA is an important step for what is to come. It ultimately seeks to improve wages of the lowest paid workers whilst promoting and supporting economic policy. The preamble states that it seeks to remedy the unequal wage gaps in South Africa, eradicate poverty and promote and equalise the disparity and lack of competition in the labour market. A close eye should be kept on the roll-out and effectiveness of NMWA as only time will illustrate the compliance and effective enforcement of its provisions in the coming months ahead.