MIN­I­MUM WAGE LOOP­HOLE

BUSI­NESS SLAMS ‘RAN­DOM’ RULE AND ONER­OUS AP­PLI­CA­TION PROCESS, WHILE LABOUR DECRIES HOW EASY IT IS TO AVOID PAY­ING THE MIN­I­MUM

CityPress - - Voices - DEWALD VAN RENSBURG dewald.vrens­[email protected]­press.co.za

Alarge part of the South African econ­omy will be ex­empted from the new na­tional min­i­mum wage (NMW), which came into ef­fect this week. Fi­nal reg­u­la­tions on ex­emp­tion from the NMW were re­leased qui­etly on De­cem­ber 19, cut­ting the wage floor from the much­pub­li­cised R20 an hour to R18 an hour for qual­i­fy­ing com­pa­nies.

The thresh­old for qual­i­fy­ing is set too low, ac­cord­ing to or­gan­ised labour.

At the same time, or­gan­ised busi­ness has crit­i­cised the lim­ited na­ture of the ex­emp­tion as be­ing “com­pletely ran­dom” and use­less to em­ploy­ers who still can­not af­ford to pay work­ers R18 an hour.

There is no fur­ther ex­emp­tion from the NMW other than the 10% drop from R20 to R18.

A NMW of R18 leads to a monthly wage of R3 096 in­stead of R3 440, based on a 40-hour week.

The reg­u­la­tions cre­ate a se­ries of tests com­pa­nies can use to qual­ify for ex­emp­tion from the NMW, based on profitabil­ity and sol­vency.

City Press cal­cu­la­tions in­di­cate large parts of the for­mal econ­omy qual­ify for the ex­emp­tion, based on the only avail­able na­tional sur­vey of com­pany fi­nan­cials – Stats SA’s an­nual fi­nan­cial statis­tics. Based on these num­bers, large parts of the man­u­fac­tur­ing and con­struc­tion in­dus­tries qual­ify for ex­emp­tion.

Sep­a­rate tests for house­holds and non­profit or­gan­i­sa­tions will al­low them to pay a lower NMW to do­mes­tic work­ers and non­profit work­ers.

The sys­tem al­lows for farm work­ers to be paid R16.20 an hour in­stead of the nor­mal R18 in that sec­tor.

Like­wise, the nor­mal NMW for do­mes­tic work­ers of R15 can be low­ered to R13.50 if a house­hold is ex­empted.

WHEN IS R20 TOO MUCH?

The ex­emp­tion rules al­low a lower NMW on six bases. As a start­ing point, any em­ployer op­er­at­ing at a loss is au­to­mat­i­cally ex­empt from the R20 NMW.

More im­por­tantly, even com­pa­nies mak­ing a profit can be ex­empted if their re­turn on as­sets – ac­cord­ing to a pre­scribed for­mula – falls un­der 6% and they also pass a se­ries of tests of their fi­nan­cial strength.

This 6% level was a ma­jor bone of con­tention when the ex­emp­tion rules were ne­go­ti­ated at the Na­tional Eco­nomic De­vel­op­ment and Labour Coun­cil (Ned­lac) last year.

The labour de­part­ment ini­tially wanted to make it 8% in line with busi­ness’ de­mands and labour ar­gued for at most 5%. The fi­nal reg­u­la­tions set­tled on 6%.

In­ci­den­tally, this is the av­er­age re­turn on as­sets in the econ­omy as a whole, ac­cord­ing to the an­nual fi­nan­cial statis­tics for 2017 – the lat­est avail­able. This shows that much of the econ­omy would be el­i­gi­ble for ex­emp­tion.

The dif­fer­ence be­tween 8% and 6% is, how­ever, enor­mous. If the thresh­old had been 8%, the in­fa­mously low-wage re­tail sec­tor would have qual­i­fied for ex­emp­tion, ac­cord­ing to City Press’ anal­y­sis of the an­nual fi­nan­cial statis­tics.

With 6% and the fur­ther tests pre­scribed by the reg­u­la­tions, 59 of the 258 sec­tors cov­ered by the an­nual fi­nan­cial statis­tics qual­ify for ex­emp­tion based only on the low­est three hur­dles for ex­emp­tion.

That means they get ex­empted with­out hav­ing to show the ac­tual ef­fect that the wage in­crease would have on them. This in­cludes much of the man­u­fac­tur­ing sec­tor and the con­struc­tion in­dus­try.

Com­pa­nies with re­turns on as­sets higher than 6% can still get ex­empted if they can prove that the new higher wage would cause them to suf­fer losses.

The ex­tent of this sit­u­a­tion can­not be de­ter­mined with­out ac­cess to com­pany pay­roll data.

These are high-level ag­gre­gated statis­tics and, within each sec­tor, there would nec­es­sar­ily be com­pa­nies that are do­ing bet­ter and com­pa­nies that are do­ing worse.

The over­all fig­ures, how­ever, show how low the bar has been set for ex­emp­tion from the NMW.

‘AR­BI­TRARY’

De­spite ev­i­dently cov­er­ing a large part of the econ­omy, the NMW ex­emp­tion rules are nowhere near what or­gan­ised busi­ness wanted.

Kaizer Moy­ane, the busi­ness con­vener at Ned­lac and so­cial pol­icy chair at Busi­ness Unity SA, said the ex­emp­tion is “ar­bi­trary” and fails to take into ac­count real af­ford­abil­ity.

If you ac­cept that an em­ployer can­not pay R20, but then say it must pay R18 with­out as­sess­ing if that is more fea­si­ble, the whole ex­emp­tion sys­tem be­comes mean­ing­less, he told City Press.

“Even if you do ex­empt a large part of the econ­omy, you still have the af­ford­abil­ity prob­lem.”

Busi­ness last met with the de­part­ment on De­cem­ber 7 to ex­press con­cerns about the then draft of the reg­u­la­tions, he said.

Their ob­jec­tions were ev­i­dently ig­nored as the fi­nal reg­u­la­tion still con­tains the main pre­scrip­tions about which busi­ness has ob­jected.

The ex­emp­tion sys­tem re­quires ap­pli­cant em­ploy­ers to have two years of fi­nan­cial state­ments. This means startup com­pa­nies are au­to­mat­i­cally re­fused ex­emp­tion, said Moy­ane.

Also, an ex­emp­tion process based on past fi­nan­cial per­for­mance would be un­able to take into ac­count fu­ture events, such as the end of a con­tract, he said.

“We said we want a sim­pli­fied process that works for small busi­nesses.”

An­other gripe is that the NMW reg­u­la­tions do not al­low mass ap­pli­ca­tions by em­ployer groups on be­half of all their mem­bers.

In­stead, the reg­u­la­tions per­mit em­ployer groups to make ap­pli­ca­tions for their mem­bers – but only one at a time.

“That sim­ply makes the em­ployer group an ad­min­is­tra­tor,” said Moy­ane.

‘GI­GAN­TIC LOOP­HOLE’

At the ne­go­ti­a­tions on the ex­emp­tion sys­tem last year, union fed­er­a­tion Cosatu called the pro­posed test for ex­emp­tion at 8% of re­turns on as­sets a “gi­gan­tic loop­hole for the en­tire NMW sys­tem”.

It claimed that “most com­pa­nies” would be ex­empted if that test stayed in place.

In a sub­mis­sion at the time, the labour fed­er­a­tion ar­gued that this num­ber should be lower than 5%.

The SA Cloth­ing and Tex­tile Work­ers’ Union’s in­dus­trial pol­icy of­fi­cer Et­tiene Vlok told City Press this week that 6% was still too high and that many “un­de­serv­ing com­pa­nies” would get ex­empted.

It was not clear why the de­part­ment chose 6%, he said. “Our con­cern is that giv­ing ex­emp­tions is al­ready unique and con­trary to what the In­ter­na­tional Labour Or­gan­i­sa­tion rec­om­mends.

“If you are go­ing to have ex­emp­tions, they do not have to be gen­er­ous,” Vlok said.

As things stood, an “enor­mous” num­ber of com­pa­nies would likely qual­ify for ex­emp­tion, he said.

An­other prob­lem for labour is that the reg­u­la­tions al­low third par­ties, such as em­ployer fed­er­a­tions, to ap­ply for ex­emp­tions on be­half of their mem­bers.

This would most likely lead to the cre­ation of groups that “fill in ex­emp­tion forms from morn­ing to night”.

“This is not the­o­ret­i­cal – this is what has ac­tu­ally hap­pened in the past,” said Vlok, re­fer­ring to ex­emp­tion pro­cesses for other cen­trally de­ter­mined wages such as South Africa’s sec­toral de­ter­mi­na­tions.

Al­though or­gan­ised busi­ness has com­plained about lim­it­ing the ex­emp­tion to pay­ing R18 in­stead of R20, Vlok said that there had to be a limit.

“It is meant to be a na­tional min­i­mum wage and the R20 has al­ready been eroded by in­fla­tion since it was first pro­posed,” he said.

Cosatu would mon­i­tor the scale of ex­emp­tions this year and take the is­sue up again when the new NMW com­mis­sion de­lib­er­ates on the first year of the wage floor, he said.

PHOTO: LIVHUWANI MUTELE

HARD AT WORK Sindi Ndlovu, a dress maker, sews clothes at the Ex­o­dus by Huyu Houz fac­tory in Doorn­fontein. Work­ers should be cel­e­brat­ing the na­tional min­i­mum wage, but there are many ways com­pa­nies can avoid pay­ing it

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