The new minimum wage and how it affects your business

18th June 2019

Minimum wage is the lowest amount of money employers can legally pay staff in exchange for labour.

The concept of minimum wage as we know it goes all the way back to the 12th century. While there is debate about the benefits and drawbacks of a minimum wage on a country’s economy on a macro level, the simple fact is that fair work deserves fair pay.

This is particularly important in South Africa, where unemployment is high. According to the Credit Suisse’s Global Wealth Report 2017, 68% of South Africans fall into the lowest wealth category worldwide – those possessing assets with a total value of less than $10 000.00, or around R140 000.00 (at the time of writing, May 2019).

In other words, more than two-thirds of South Africans would be extremely vulnerable to exploitation if minimum wage laws didn’t exist.

On 1 January 2019, the National Minimum Wage Act came into effect.

We chatted to Candace Bachmann, a legal specialist at Justine Del Monte & Associates Incorporated, to find out what changed and how it affects small business owners.

What does the law say about the minimum wage a small business needs to pay its employees?

As at 1 January 2019 the National Minimum Wage Act 2018 (‘Act’) came into effect and workers are entitled to a national minimum wage (‘NMW’). The sector in which the worker is employed or contracted will determine the amount applicable. For example, domestic workers are entitled to a NMW of R15.00 per hour while farm workers are entitled to R18.00 per hour. General workers will be entitled to a NMW of R20.00 per hour. Workers earning in excess of the NMW will continue to earn at the current rate and employers may not lower the hourly rate to the current NMW.

Are contract / temp workers included?

The term ‘worker’ appears in the legislation and means that both employees (temp and permanent) and contractors are covered by the Act.

Are there any industry-specific caveats?

If the small business operates within an industry or sector which is subject to a Sectoral Determination, that business must abide by the minimum wage determined for that specific industry or sector as set out in the Sectoral Determination. Therefore, the NMW will not be applicable to businesses within regulated industries. Examples of industries/sectors subject to Sectoral Determinations are the Wholesale and Retail Sector, Hospitality Sector and Private Security Sector.

Are there exemptions?

Yes. Chapter 4 of the Act contains an exemption process which, if the employer qualifies, exempts them for a limited period of time from paying the NMW.

As a small business owner, how do I get an exemption?

An employer may apply for exemption with the Delegated Authority and must lodge such an application through the National Minimum Wage Exemption System. An employer may only be granted exemption if the Authority is satisfied that (1) the employer cannot afford to pay minimum wage and (2) representatives of the employees or the employees themselves have been meaningfully engaged in consultations.

What penalties could I suffer if I choose to ignore this?

In terms of the amended Basic Conditions of Employment Act 75 of 1997, an employer must be aware that there are two areas of ‘penalties’ which may be applicable.

1. Section 76A – Fines may be imposed, by the Department of Labour, if it is determined that the employer is not complying with the Act and not paying employees the NMW where applicable.
2. Section 73A – An employee may refer a dispute to the CCMA for conciliation/arbitration if the matter relates to the non-payment of the NMW in terms of the Act. In such disputes the conciliation/arbitration process may not be objected to and no legal representation is permitted. A binding award will be issued by the CCMA once it has heard the matter.

Okay, so that’s the legal stuff sorted. What about the ethical part of the conversation?

With Candace kindly establishing the legal implications of the new Act, other implications of the NMW – and minimum wage principles in general – come sharply into focus.

One company doing great work on this front is SweepSouth. With one eye on innovation within an industry through technology – and dignified, flexible work and decent pay for its employees on the other – the tech startup is in a strong position to weigh in on the conversation.

We caught up with co-founder and CEO Aisha Pandor. She offered insight and authority on the matter of minimum wage, and a whole lot of hope for the future.

“Our continent’s biggest strength is its people. Particularly our youth, who have incredible untapped potential. We want to create a platform that allows anyone to earn a fair rate, under decent work conditions, to customers who need their skills.”

As of May 2019, SweepSouth employs over 7000 SweepStars. Many of these workers were previously unemployed. And the vast majority are earning more now than they were at any point prior to joining the tech startup. As such, minimum wage is very much on SweepSouth’s radar.

“It protects the labour force against exploitation, particularly in economies with high unemployment rates. A minimum wage helps to stimulate the economy, and it should increase over time along with inflation and economic growth.”

The influence minimum wage has on a country’s economy and workforce morale should never be underestimated.

Having grown massively since launching in 2013, the impact that SweepSouth has had on the unskilled and semi-skilled workers has been significant.

They’ve overcome the typical challenges that tech companies face, such as getting customers to trust them with their details. And that the service paid for would actually be delivered on. Bearing in mind that Uber had only just entered the local market at the time, it was a proverbial mountain to climb.

Then there’s the added pressure of their service requiring smartphones on both sides of the transaction – a luxury many SweepStars didn’t have until they joined. With technology becoming more affordable and therefore more accessible, this isn’t as much of a hurdle now. It’s a mark of progress Aisha is grateful for.

“The shift speaks to our ability to recognise that although smartphone penetration was an issue when we launched, it would be temporary. Natural trends move towards increased access to apps and other services via the internet, and data costs are decreasing.”

That access is crucial. And to have access, you need to earn money. Which brings the focus sharply back to the minimum wage.

Is the minimum wage enough to live on?

As Candace outlined in the legal side of the conversation, the minimum wage for workers in the domestic sector is 25% less than workers in the general sector.

According to a study conducted and published by SweepSouth themselves, the minimum wage for domestic workers doesn’t cover their average expenses.

To put it into perspective, the NMW for the general workers translates to roughly R150/day, or around R3200/month. But various sources cite the real living wage for a single adult in South Africa at upwards of R4200/month.

In other words, the NMW falls approximately R1000 short of what it costs someone to live with any level of dignity and comfort. And that’s if they’re living alone.

Consider then that workers in the domestic sector earn even less.

To combat this, it’s possible to look into things like social grants, housing benefits and medical support – initiatives that reduce the cost of living. It’s also important to regularly increase the minimum wage to keep up with inflation.

Ultimately, on a legal level, these things are out of the control of business owners. But what people can do, and what Aisha is doing, is implement innovative ways to increase what workers are paid.

As ever, technology can help.

“Being a sharing economy platform, we place a premium per hour rate (vs the average paid across the country) on the work done across the platform. But we allow the flexibility of booking a number of hours and a frequency that suits the customer. When work is shared across various customers, the overall effect is that service providers earn more.”

SweepSouth is a wonderful example of a business using technology to benefit the end user as well as the country as a whole. Their platform is innovative and their model is a force for positive change.

“The impact and legacy we want to leave to give our people hope, independence and the ability to adequately care for their families. Doing this through technology ensures that people aren’t left behind in becoming digitally educated and digitally literate.”

SweepStar really is putting power into the hands of the people. We salute them