Increases in the minimum wage and earnings threshold (South Africa)

South African employers have become used to annual increases in the (1) earnings threshold and the (2) national minimum wage announced by the Minister of Employment and Labour. This means that employers have to review and audit their payment- and staffing structures on a regular basis to ensure that these are aligned with the new amounts and to remain in compliance with labour laws. It should be noted that the employer cannot ‘contract out’ of these obligations and compliance is compulsory.

Minimum Wage

The National Minimum Wage is the floor level below which no employee in South Africa should be paid. It applies to all workers i.e., any person who works for another person and who receives or is entitled to receive any payment for that work. The minimum wage cannot be varied by contract, collective agreement or law, except where it provides for a more favourable wage.

The minimum wage amount excludes allowances that are paid to enable employees to work (such as transport and equipment), or payment in kind (such as board or accommodation), as well as bonuses, tips, or food. As such, an employer cannot argue that it pays an employee less than the minimum wage because it provides them with meals. Also, if an employee earns commission and is paid on a commission basis only, case law has indicated that if their commission earnings are less than the minimum wage amount for a given month, the employer is obliged to top this amount up to at least the current minimum wage level.

Earnings Threshold

This threshold is an amount determined by the Ministry of Employment and Labour from time to time, which establishes a category of ‘vulnerable workers’ (lower earners) who are entitled to more benefits and protections in terms of various labour laws than employees who earn above this threshold. This amount is adjusted regularly and an increase essentially means that more employees in a workplace may become part of the vulnerable group.

Those employees earning below the threshold are therefore entitled to these additional statutory protections, unless or until their earnings also increase up to or over the new threshold. If the employer has granted less than inflationary increases for a particular year, an increased threshold may nonetheless have a significant impact on the employer's bottom line, due to an increased number of ‘lower earners’. The wage bill will be impacted, since the statutory protections for this group include the entitlement to receive statutory overtime pay, obligatory meal breaks, night work allowances, etc.

Also, these employees are protected when employed on fixed-term contracts (directly or via a labour broker) for longer than 3 months, as they would be deemed as permanent employees unless a justifiable reason for their temporary status can be provided by the employer, and then have an entitlement to earn on an equal basis with permanent comparators working for the employer. For a more comprehensive explanation of the earning threshold, download our informational document here.

“Earnings” are defined as the employee’s regular annual remuneration before the deduction of income tax, pension, medical aid and similar payments, but excluding similar payments/contributions made by the employer in respect of the employee. However, subsistence and transport allowances, achievement awards and payment for overtime worked are not regarded as part of remuneration (earnings) for the purpose of the calculation.

As mentioned above, employers need to audit the status of their employees (including fixed-term employees and staff provided by labour brokers) as well as payment structures, to ensure that they assess the impact of this increase on their business, and to make the necessary budgetary provisions accordingly.

© Judith Griessel