How does your Wage Calculation look?

Written by Natercia dos Santos Niz, Candidate Attorney

In the South African context, a minimum wage is of monumental importance to vulnerable members of our workforce. Employers are cautioned against falling foul of the National Minimum Wage Act when agreeing to a wage that is less than the prescribed minimum. A less obvious conflict with the National Minimum Wage Act may exist when employers incorrectly calculate the wages of their employees and inadvertently remunerate the employees at a wage lower than the prescribed minimum.

The Act sets out as its purposes: the improvement of wages of the lowest paid workers, protection of workers from unreasonably low wages, preserving the value of the national minimum wage, promoting collective bargaining, and supporting economic policy. The national minimum wage amount is specifically set with the view of advancing economic development and social justice.

A wage is “the amount of money paid or payable to a worker in respect of ordinary hours of work or, if they are shorter, the hours a worker ordinarily works in a day or a week”. After quantifying these amounts, the wage received by the employee cannot be less than the prescribed minimum. From the 1 March 2021, the minimum wage was increased from R20.78 to R21.89 per ordinary hour worked.

A wage does not include additional benefits which the employee is entitled to in terms of their employment contract. It is critical for employers to understand exactly what amounts can be included and excluded from the calculation of a wage. When including amounts in the calculation which should not be included, employers run the risk of remunerating their employee at a rate that is below the minimum wage. Examples of this would be including overtime and commission payments in the wage calculation. The Act prescribes minimum wage rates for ordinary hours worked and this cannot include overtime pay.

In the recent decision of the CCMA, Workers Against Regression obo Motshegetsa and others / Atlas Finance, the method to be used when calculating a wage was thrust into the spotlight. The question, which the employer incorrectly answered, was whether the commission earned by a salaried employee formed part of the wage amount received by that employee.

Essentially, by adding the commission earned to the salary, which independently was below the national minimum wage, the employee was receiving a monthly amount that exceeded the national minimum wage. However, if the commission earned was excluded from the salary received, the amount was less than the national minimum wage. The employer raised the point that when the commission made by an employee in a month in addition to the salary did not exceed the minimum wage, the employer would “top up” the salary to be in line with the minimum wage.

The employees approached the CCMA and claimed backpay for the period January 2019 to 1 November 2020. During this period, the salary amount excluding commission was below the minimum wage. For the year of 2019, the employees should have been earning an hourly rate of R20.00 and then R20.76 for 2020.

The Commissioner considered the definition of “wage” and confirmed that commission amounts are not included in the calculation of wages. Accordingly, the Commissioner ordered that the employer remunerate the employees for the backpay they were entitled to. Further, the employer was ordered to pay a penalty for non-compliance with the minimum wage as set out in the Act. The total amount the employer was ordered to pay was R1 006 619.84. The penalty to be paid by an employer is equivalent to whatever the employees are entitled to. Therefore, the employer is essentially paying two amounts for each employee, the backpay amount to the employee and a penalty in the same amount.

It is important for employers to note that they cannot contract with an employee to be remunerated below the national minimum wage. The minimum wage cannot be altered by agreement and even with an employee’s consent, it would still be in conflict with the Act to remunerate an employee below the prescribed wage rate. An employer can only be exempt from complying with the national minimum wage in terms of Section 15 of the Act which allows for an employer or registered employers’ organisation to apply for an exemption from the national minimum wage.

This case should serve as a reminder to all employers and employees that the minimum wage is not a numerical goal, or guiding figure. The national minimum wage is a legislated minimum which must accordingly be strictly adhered to by all employers who are not looking to pay a considerable fine.