The new national minimum wage has been a subject of contention from both business and labour and, although it is too soon to tell the effect of the new wage floor, the department of labour has received 26 applications for exemption.
Of the applications, 24 were from businesses and two from households.
The National Minimum Wage Act, which came into effect on January 1, stipulates that employers should pay their employees a minimum of R20 an hour or, in the case of domestic workers, R15, and farm workers, R18.
Employers who prove they cannot afford to pay the minimum wage after passing various affordability tests considering the profitability, solvency and liquidity of a company, can get a 10% exemption. This means they pay R18 an hour for the general minimum wage, R13.50 for domestic workers and R16.20 for farm workers.
The chief director of labour relations at the department, Thembinkosi Mkalipi, said the 10% threshold exemption was put in place to “protect the value of the minimum wage”. But business has criticised the exemption as arbitrary and implemented without considering the “real” affordability for an individual employer.
“This arbitrary threshold basically means a business that cannot afford to pay R18, but can afford to pay R17, will now be forced to carry the extra, unsustainable cost,” said Kaizer Moyane, a business convener at the National Economic Development and Labour Council and social policy chair at Business Unity SA.
Jaco Swart, the national bargaining council co-ordinator at the National Employers Association of South Africa, agreed that the blanket discount did not consider the economic realities of individual businesses.“We have already received requests from members for assistance with retrenchments.”
Moyane said the 10% threshold introduced with regulations published in December and not by the Act was problematic because it meant that “subordinate legislation is amending enabling primary legislation”.
He said it is too early to assess the real reasons behind the relatively low number of applications, but said it is possible that some businesses could opt out of complying with the new regulations.
“If the wage is set too high and employers are not afforded proper access to exemptions, unfortunately the result may be widespread non-compliance, which we had always sought to avoid,” said Moyane.
On the other hand, Gilad Isaacs, a researcher at the University of the Witwatersrand’s National Minimum Wage Research Initiative, said: “The exemption processes and criteria are very favourable to business and pose a risk that the national minimum wage will be undermined.”
Isaacs said the 26 applications for exemption in the first two weeks of the Act coming into effect were worrying because they are supposed to cater for exceptional circumstances.
“Internationally, exemptions from national minimum wage regulation are very rare. We should be most concerned about the abuse of exemptions.
“The government has also, inexplicably, opposed other measures to ensure compliance, [such as] preferential access to tenders, subsidised credit and tax incentives, as have been successfully implemented in other countries,” said Isaacs.According to the regulations, if a company is trading at a loss, it will receive an immediate exemption. But if a company is profitable, it will have to show that the return on assets is below 6% and pass further solvency tests to show the company has a weak financial structure before being granted an exemption.
Employers have to apply for exclusions using the national minimum wage exemption system.
The regulations stipulate that businesses have to submit full financial documents for three years, one showing the current year’s predictions and two showing the previous years’ performance. Households, on the other hand, should provide details of their annual income minus their expenditure and non-profit organisations should also present three-year financial statements and other financial information such as sources of income.
Mkalipi said the system either approved or rejected an application live online, much like the South African Revenue Service’s tax submission.
Exemptions are in place for a period of no longer than a year. The department can also withdraw the exemption if the employer is found to have lied or its financial position improves. The regulations say that exemptions will only be considered if the employer is compliant with the relevant statutory payments such as the Unemployment Insurance Fund, the Compensation Fund and any applicable bargaining council agreement.
Moyane said some of the requirements could be a barrier for small businesses seeking exemptions.
“The requirement of financials for a number of years, including projections, may be a bridge too far for some small businesses.”
Moyane also said they had not yet received feedback from their members because most businesses had just come back from the holiday break. But, in addition to exemption issues, he anticipates that concerns might arise about the enforcement processes as the Commission for Conciliation, Mediation and Arbitration’s (CCMA) systems get tested.
The level of compliance by employers will be measured in time when the CCMA releases statistics of complaints received from workers.
The Act does not go far enough towards protecting the rights of workers, said Isaacs.
“The level of the [minimum wage] is low and there is no guarantee that it will increase annually and no medium-term target has been set. There is also not a higher level for part-time workers, as in some of the previous sectoral determinations.”
Tebogo Tshwane is an Adamela Trust business reporter at the Mail and Guardian.