COMMENTS REQUESTED: PROPOSED INCREASE TO THE NATIONAL MINIMUM WAGE RATE PER HOUR
Government Gazette No. 51787
At this late stage of the year, the National Minimum Wage Commission’s report and recommendations on the annual review of the national minimum wage were published in Government Gazette No. 51787 on 20 December 2024 (dated 18 December 2024).
The purpose of this Newsflash is to bring this notice to your attention as soon as possible.
All interested parties including payroll suppliers and employers, are invited to submit written comments in respect of the recommendations to either [email protected] (by 10 January 2025) or to [email protected] (by 14 January 2025), and with the festive season ahead of us, there is not much time before these deadlines are upon us.
Proposed Calculation of the National Minimum Wage Rate
The NMW Commission considers several factors in its annual adjustment of the minimum wage.
These include inflation, the cost of living, and the need to maintain the value of the minimum wage; wage levels and outcomes of collective bargaining; gross domestic product (GDP); the ability of employers to sustain their businesses; the operation of small, medium, or micro-enterprises and new enterprises; and importantly, the impact on employment and job creation.
The notice proposes a calculation of the national minimum wage rate per hour that, after taking the comments into account and approval by the Government, will be published in February 2025 with effect from 1 March 2025.
Based on written submissions in August 2024 and on their investigation of employment and wage statistics, the National Minimum Wage Commission has recommended to the Government that the minimum wage for 2025 be increased by the consumer price index, plus 1,5%.
NMW Increase Rates
Note that the CPI rate of inflation that will be used for this calculation will be the December 2024 CPI inflation rate that will be published in January 2025. The CPI inflation rate was 2,9% in November 2024, a slight increase from 2,8% in October 2024.
This is perhaps an indication that the December CPI rate could be slightly higher than 2,9%, and if, for example, the December 2024 CPI rate turns out to be 3,0%, then the increase to the NMW rate will be 4,5%.
It is worth noting that the NMW rate per hour that came into effect on 1 March 2024 and that was based on a CPI inflation rate in January 2024 of approximately 5,1%, was R27,58 per hour, which was an increase of 8,5% from the 1 March 2023 NMW rate of R25,42 per hour.
Employment Tax Incentive Calculation
The brackets of the third step of the formula specified in section 7 of the Employment Tax Incentive Act to calculate the monthly ETI amount, start at R4,500 pm and end at R6,500 pm.
Based on an 8-hour working day and a 5-day week, R27,58 per hour equates to R4 780,53 per month.
This means that for an employee who is employed on an 8-hour per day, 5-days per week basis, and who earns no other remuneration besides a wage paid at the national minimum wage rate of R27,58 per hour, the first two steps of the ETI calculation formulae are redundant.
In addition, the upper limit of the formulae beyond which ETI is not calculated, is R6,500 per month.
This monthly rate equates to R37,50 per hour, a rate that could be reached before the current sunset date of the Employment Tax Incentive Act (28 February 2029) depending on the CPI rate over the years ahead and how far above it the NMW Commission decides to increase the NMW rate from year to year.
The PAGSA pointed out these aspects of the link between the NMW rate and the ETI calculation formulae in our proposal to change employment-tax related laws that we submitted in November 2024 to the National Treasury and SARS for their consideration for inclusion in the 2025 Budget Review.
