National Minimum Wage Act And The Quantum Foods Decision
The national minimum wage increases on 1 March 2024 to R27.58 per hour. This will be an increase of 8.5% on the current minimum wage of R25.42 per hour that employers will have to pay for general workers.
Farm workers and domestic workers, including cleaners, childminders, gardeners, drivers, and any other workers in private households will earn the new minimum wage of R27.58 per hour.
The net effect of the above is that an increase of 2.5 percentage points above the average rate of inflation, that was 6% in 2023, must now be granted
Economic Viability
The legislative change is aimed at addressing longstanding concerns of a living wage in South Africa, but this must be balanced against the operational requirements of employers especially employers who are operating as small to medium sized businesses, including farmers.
These employers must be mindful of the above inflation cost creep that is annually brought about by the operation of the National Minimum Wage Act 9 of 2018 (“NMWA”) in order to ensure that they remain economically viable in both a local and global farming market – the cost creep finds application in the largest portion of the expense pie-chart being employment costs.
Economic viability will be determined by the ability of employers to strategically navigate their operational environment by implementing cost effective and efficient strategies that directly influences the business’ bottom line. One such strategy should be focused on the compounding effect that above-inflation minimum wage increase will have on a business.
The Inclusion of Contractual Bonuses and Provident Fund
When it comes to compliance with the NMWA, employers struggle with what exactly gets included in the calculation of wages. The confusion stems from whether or not a contractual bonus would be considered a gratuity. Importantly, Section 5(1) of the NMWA, which defines how minimum wages should be calculated specifically excludes “gratuities, including bonuses, tips, or gifts” from the calculation..” The Labour Appeal Court (“LAC”) provided some much-needed guidance on the issue in Quantum Foods (Pty) Ltd v Commissioner H Jacobs N.O. and Others (JA85/2022) [2023] ZALAC
Quantum Foods attempted to ensure compliance with the NMWA by attempting to align the wages of its staff by amending their respective payslips to include a contractual bonus and the provident fund. The union representing the employees took umbrage with this and referred a matter to the CCMA wherein the Commissioner came to the conclusion that it would not fall within section 5 of the NMWA as it was additional payment. The matter made its way to the Labour Court who confirmed the decision of the CCMA.
The Labour Appeal Court ultimately ruled that in the Quantum Foods case, a contractual bonus, which is an enforceable contractual obligation, should be included in the minimum wage calculation. Furthermore, provident fund contributions should also be factored in as they meet the Act’s definition of “payable in money for ordinary hours of work.”
The LAC’s decision in this case provides clarity as it affirms that contractual bonuses and provident fund contributions can be included in minimum wage calculations, provided they meet the NMWA requirements.
The judgment is beneficial to employers in that it protects those who are compliant with the act insofar as provident funds and contractual bonuses are concerned and also safeguards the rights of employees, especially those who are blue-collar workers from being deprived of wages in line with the NMWA.
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