Chapter 2. Rate and Threshold Changes
2.1 Official Rate of Interest
The “Official Rate of Interest” (ORI) is the rate of interest that is equal to the RSA repurchase rate (Repo rate) plus 100 basis points (1%). The official rate of interest changes from the first day of the month following the month in which the Repo rate change comes into effect, and is defined in section 1(1) of the Income Tax Act as follows:
“official rate of interest” means—
(a) in the case of a debt which is denominated in the currency of the Republic, a rate of interest equal to the South African repurchase rate plus 100 basis points; or
(b) in the case of a debt which is denominated in any other currency, a rate of interest that is the equivalent of the South African repurchase rate applicable in that currency plus 100 basis points:
Provided that where a new repurchase rate or equivalent rate is determined the new rate of interest applies for the purposes of this definition from the first day of the month following the date on which that new repurchase rate or equivalent rate came into operation;
Employers must calculate a ‘low-interest loan’ fringe benefit in respect of any personal loans granted by the employer to employees with either no interest or at an interest rate that is less than the ‘official rate of interest’.
The value of the fringe benefit is the difference “during the year of assessment” between the interest amount calculated at the official rate of interest, and the amount calculated at the employer’s lower interest rate.
Official Rate of Interest – Recent History
FROM TO ORI
01.02.2020 31.03.2020 7,25%
01.04.2020 30.04.2020 6,25%
01.05.2020 31.05.2020 5,25%
01.06.2020 31.07.2020 4,75%
01.08.2020 30.11.2021 4,50%
01.12.2021 31.01.2022 4,75%
01.02.2022 31.03.2022 5,00%
01.04.2022 31.05.2022 5,25%
01.06.2022 31.07.2022 5,75%
01.08.2022 30.09.2022 6,50%
01.10.2022 30.11.2022 7,25%
01.12.2022 31.01.2023 8,00%
01.02.2023 31.03.2023 8,25%
01.04.2023 Next Increase 8,75%
History of the Official Rate of Interest since 1985
Highest ORI Lowest ORI
19,00% on 1 May 1990 6,00% on 1 Aug 2012
19,00% on 1 Dec 1998 4,50% on 1 Aug 2020
If the interest rate is lower than the official rate of interest, Seventh Schedule paragraph 11(4) specifies three types of loans where the ‘Low Interest’ fringe benefit is given a zero value, therefore there no fringe benefit tax for:
1. ‘Casual’ loan: If the total of a “short term” and “irregular” loan is less than R3 000 “at any relevant time”
2. ‘Study’ loan: Paragraph 11(4)(b): Must be granted to assist the employee to study.
3. Residential accommodation loan: To assist the employee to purchase residential accommodation:
[Paragraph 11(4)(c): Rem proxy <= R250,000 and the Market value <= R450,000] (from 1 March 2019). 2.2 BCEA Earnings Threshold In terms of section 6(3) of the Basic Conditions of Employment Act, the Minister of Employment and Labour issued Government Gazette 48092 on 20 February 2023 to increase the BCEA earnings threshold from R224 080,48 pa to R241 110,59 pa, an annual increase of R17 030,11 (7,6% pa), with effect from 1 March 2023. Important aspects of the application of the BCEA Earnings threshold are discussed below. BCEA - Application of the Earnings Threshold The BCEA earnings threshold governs the sections of the BCEA that regulate the hours of work in various ways. Abbreviated, the notice states that: “… all employees earning in excess of R241 110,59 per annum … [must] be excluded from sections 9, 10, 11, 12, 14, 15, 16, 17(2) and 18(3) [of the BCEA]”. This means that employees who earn more than the BCEA earnings threshold are not entitled to the automatic protection provided by the following sections of the BCEA: • Section 9 (Ordinary hours of work) • Section 10 (Overtime) • Section 11 (Compressed working week) • Section 12 (Averaging of hours of work) • Section 14 (Meal intervals) • Section 15 (Daily and weekly rest period) • Section 16 (Pay for work on Sundays) • Section 17(2) (Night work) • Section 18(3) (Public holidays not ordinarily worked). In other words, only employees that earn below or equal to the BCEA threshold enjoy the protection of these sections of the BCEA, and for example, must be paid overtime. Employees that earn above the threshold are not entitled to the automatic protection of these sections. Again, a commonly occurring example is that of overtime - employees that work overtime are not automatically entitled to be paid overtime if they earn above the threshold. If the employer so wishes, the provisions of the above sections of the BCEA that are not automatically provided can be included in the employment contract. Note that: 1. Section 18(3) of the BCEA (public holidays that are not ordinarily worked), protects only those employees that earn below the BCEA threshold, whereas section 18(2) (public holidays that are ordinarily worked), protects all employees i.e. the earnings threshold is not applied to section 18(2). 2. Those employees that earned between the previous threshold of R211,596 and R224,080 per year before the earnings threshold was increased to R224,080 per year, were not entitled to the protection listed above, but after the increase they are entitled to the protection, notwithstanding the fact that their contracts might state that they do not qualify. 3. Most of the ‘working time’ provisions of the BCEA do not apply to senior managerial employees even if they earn less than the threshold. A senior managerial employee is “an employee who has the authority to hire, discipline and dismiss employees and to represent the employer internally and externally”. What is ‘BCEA Earnings’? The notice goes on to define ‘Earnings’ to be: "… the regular annual remuneration before deductions, i.e. income tax, pension, medical and similar payments but excluding similar payments (contributions) made by the employer in respect of the employee: Provided that subsistence and transport allowances received, achievement awards and payments for overtime worked shall not be regarded as remuneration for the purpose of this notice.” The BCEA earnings definition is explained by ‘parsing’ (examining its component parts one by one): “… Remuneration …” The notice is issued in terms of section 6(3) of the BCEA, therefore the ‘remuneration’ that is used as the base amount for ‘earnings’ in the definition of “earnings” in the notice, is ‘BCEA remuneration’, defined to be: “… any payment in money or in kind, … made … in return for that person working for any other person, …” BCEA remuneration is a complex subject that is beyond the scope of this Newsflash, but in short, BCEA remuneration does not include: • Allowances • Benefits that are not granted in return for ‘work done’ (in other words, benefits that are granted in return for ‘work done’ are BCEA remuneration). “… before deductions …” This part of the definition specifies what could be termed ‘gross’ remuneration i.e. remuneration before deductions, but the wording starting from “but excluding” is clumsily drafted and easily misinterpreted. It is clear (and obvious) that remuneration must not be reduced by employment taxes (PAYE, SDL and UIF). What is not clear is that the wording following “but excluding” appears to specify that remuneration must also be reduced by employer-paid contributions to medical schemes, retirement funds etc. This is not correct - employer-paid contributions to medical schemes, retirement funds, etc. must be included in BCEA remuneration. The Department of Employment and Labour has confirmed this by providing the PAGSA with their interpretation that states that employer-paid contributions to medical schemes, retirement funds, and similar, are BCEA earnings and the value of the amount contributed must be included. “… subsistence and transport allowances …” As pointed out above, all allowances are excluded by definition from BCEA remuneration. However, to reduce queries and prevent misunderstandings, the notice specifically excludes two commonly used allowances that in tax law have special tax rules, being the subsistence allowance and the travel allowance. “… achievement awards …” Even though they are normally BCEA remuneration, the notice specifically excludes ‘achievement awards’ from BCEA earnings. Achievement awards include: • Bonuses • Commissions • Incentive payments, etc. “… overtime …” Application of the BCEA Earnings Threshold to the BCEA As stated above, only employees earning below the threshold are subject to the provisions of BCEA section 10 that provides the overtime rules. This means that if an employee works overtime and earns – • Below the threshold, then the overtime must be paid by the employer, • Above the threshold, then the overtime may be paid (the employer can choose whether or not to pay). In the past, when calculating the value of an employee’s BCEA earnings, the notice at the time specified that only ‘occasional’ overtime was excluded from BCEA earnings. This was a nonsensical requirement - how does one decide which overtime hours are ‘regular’ and which are ‘occasional’? By its nature, overtime is an irregular payment. The PAGSA submitted comments on this impractical requirement for many years until finally the wording in the notice was changed to what we have now - all overtime payments are excluded from BCEA earnings. Application of the BCEA Earnings Threshold to Other Acts The BCEA earnings threshold is applied in the LRA (Labour Relations Act) and the EEA (Employment Equity Act). Labour Relations Act [sections 198A, 198B, and 198C] Certain categories of employees earning below the earnings threshold are seen as being ‘vulnerable’ and are entitled to additional protection. The vulnerable categories of employees are those in non-standard employment arrangements including fixed term contracts, labour brokers, and part-time employees. Fixed-term contracts: Employees who earn below the threshold and are employed for a period exceeding 3 months, may be regarded as permanently/indefinitely employed if there is no justifiable reason (there are nine reasons) for the limited duration of the contract (section 198B(4) of the LRA). Those earning above the threshold do not enjoy the same protection. Temporary employment services (TES): Employees earning below the threshold may be deemed to be permanent employees of the client of the TES in certain circumstances. For example, if they are placed with the client for a period exceeding 3 months or if they are not merely substituting an employee who is temporarily absent (Section 198A(3)(b) of the LRA). The same does not apply to those earning above the threshold – they remain the employees of the TES. Employment Equity Act An employee who earns above the earnings threshold and who has a dispute under Chapter II of the EEA (unfair discrimination) is not permitted to refer the dispute to the CCMA for arbitration (unless the dispute relates to alleged unfair discrimination on the grounds of sexual harassment, or the parties agree to arbitration) and is obliged to refer the dispute to the Labour Court for adjudication. There are other areas of the LRA and the EEA that take BCEA earnings into account such as ‘monetary claims’ and ‘unfair discrimination disputes’ but these are outside of the scope of this workbook. History of BCEA Earnings Increases BCEA EARNINGS THRESHOLD Effective Annual 1 Mar 2008 R149 736 1 Jul 2011 R172 000 1 Jul 2012 R183 008 1 Jul 2013 R193 805 1 Jul 2014 R205 433 1 Mar 2021 R211 596,30 1 Mar 2022 R224 080,48 1 Mar 2023 R241 110,59 The history of the increases to the BCEA earnings threshold shows a 7-year gap from 2014 until 1 March 2021 during which the threshold was not increased. This was presumably because of the amendments to the Labour Relations Act in 2014 to introduce the concept of ‘deemed employment’ for those employees that fall into a “temporary services” category, and that only apply to employees that earn below the BCEA threshold (discussed in the Labour Relations Act sub-section above). The application in practice of the concept of ‘deemed employment’ is difficult, and my understanding is that the BCEA earnings threshold was not increased annually to keep the number of occurrences of ‘deemed employment’ as low as possible while the challenges to the new requirements wound their way through the courts. Following the ConCourt judgement, the labour authorities felt comfortable enough to increase the threshold. 2.3 Compensation Fund Earnings Threshold The COIDA earnings threshold places a ceiling on the earnings that employers must declare annually to the Fund in the Return of Earnings (ROE). Payrolls calculate the “earnings” per employee up to the earnings threshold and accumulate the ‘capped’ earnings of all employees to assist the employer to complete the ROE annual return. The Fund then calculates the assessment value by multiplying the total earnings reported on the ROE by the employer’s industry rate (or tariff as it is sometimes referred to) and issues an invoice to the employer for payment. The invoiced amount is the expense of injuries and disease insurance for the employer, and income for the Fund. If all goes well, and payment has been made, the process is ended by the Fund making a ‘Letter of Good Standing’ available for the employer to download, which is an electronic process that apparently now works well. ‘Year of Assessment’ Terminology On 3 December 2020, the Minister of Employment and Labour published a regulation in Gazette No. 43959 that specified a revised assessment tariff structure for the year of assessment 1 March 2021 to 28 February 2022. The tariffs will be discussed in the next chapter that deals with the Compensation Fund amendment legislation. This notice clarified by way of an example that the 2021 year of assessment is the year starting 1 March 2020 to 28 February 2021. This is the same naming principle as in the tax world, but unfortunately this clarification was short-lived – it was changed in Gazette No. 44409 a few months later. The Department of Employment and Labour reversed their earlier decision in Gazette No. 44409 on 1 April 2020 (and ‘yes’, this was April Fool’s day but this is no joke …) and stated that the year in which the starting month falls, indicates the year of assessment. For example: the 2022 assessment year is the year starting 1st March 2022 and ending 28th February 2023. Those of us in the tax world who are used to the naming principle that the year of assessment is indicated by the year in which the ending month falls, will simply have to remember that the labour terminology is different. Best practice is to specify the start and end month of the year, then there is no possibility of a misunderstanding. Earnings threshold Increase for 2022/20233 and for 2023/2024 The Director-General of Employment and Labour issued Government Gazette Number 48065 on 17 February 2023 to announce that the period during which employers must submit the annual Return of Earnings for Actual earnings for 2022/2023, and Provisional earnings for 2023/2024, is 1 April 2023 to 31 May 2023. A second Gazette with the same number (48065) and the same date of issue (17 February 2023) specified the two earnings thresholds for the two years of assessment as follow: 1. R 529 264 for 1 March 2022 to 28 February 2023 2. R 563 520 for 1 March 2023 to 28 February 2024. The concept of ‘Earnings’ for the purpose of the Compensation for Occupational Injuries and Diseases Act (COID Act) is discussed in the next chapter of this workbook. 2.4 Unemployment Insurance Limits Background to the Recent UIF Limit Change The calculation of the UIF TERS benefit during the recent Covid-19 lockdown periods underlined the importance of the UIF benefit limit when calculating UIF benefits. Remuneration above the benefit limit is ignored, and the result is that the benefit value is ‘capped’. The 2021 Budget announced (correctly) that the remuneration limit for contributions will increase from R14 872 pm to R17 711,58 pm, and (incorrectly) that the effective date of this increase is 1 March 2021.   There were three problems with this announcement: 1. Never before has there been cents in the limit amount 2. The benefit limit is R17 712 – why does the contribution limit differ by a few cents? 3. The Minister cannot change the contribution limit with immediate effect by announcement in the budget – it requires a notice in a Gazette in terms of Unemployment Insurance Contributions Act section 6(2). The upshot of a frantic few days of discussions between the PAGSA, SARS, and National Treasury is that the 1 March 2021 effective date announcement in the Budget was scrapped, and the proposed increase to the UIF contribution limit was issued for public comment. Following the public comment period, Gazette No. 44641 was issued on 28 May 2021, and increased the monthly UIF contribution limit to R17 712 with effect from 1 June 2021. The effective date was only a few days after the publication of the notice, leaving payrolls very little time to implement the increase for June. The monthly contribution limit is now aligned with the monthly benefit limit that is used by the Fund to calculate all benefits (including the TERS and the latest TFRS benefit) based on monthly remuneration limited to R17 712. Comments on the UIF Contribution Increase The 2020 Covid lockdown and TERS period, followed by the July 2021 civil unrest riots, hit the Fund financially very hard from three sides: 1. The TERS benefit payments (approximately R60 billion by February 2021) 2. A spike in unemployment benefits as a result of a massive increase in retrenchments 3. A reduction in the inflow of UIF contributions - remuneration either disappeared (unemployment) or was reduced by agreement to keep companies afloat. An increase to the contributions limit will result in larger contribution amounts that will over time help the Fund to get back onto solid financial ground. Prior to the Covid-19 problems and the recent civil unrest, the Fund – fortunately for South Africa – had a healthy surplus. We need the Fund to reach this position again – who knows when it will have to weather the next storm. Chapter 3 of Budget 2023 expects the various social security Funds (including UIF) to return to a surplus position by 2025/2026, and states as follows: “Social security funds ran cash deficits of R46.7 billion in 2020/21 due to the higher spending by the Unemployment Insurance Fund (UIF) in response to COVID-19. Social security funds are projected to run cash deficits until 2024/25 mainly driven by the UIF and Road Accident Fund. The social security funds are expected to return to a surplus position by 2025/26.” Latest UIF Monthly Limits Since 1 June 2021, the UIF limit for both contributions and benefits is unchanged – R17 712 per month. 2.5 Increases to the National Minimum Wage Rates Background The National Minimum Wage Act (NMW Act) was promulgated on 12 Dec 2018 and made effective on 1 January 2019 - leaving payrolls less than 3 weeks in which to implement. The NMW Act establishes the National Minimum Wage Commission and tasks it with the duty to every year investigate and review the impact of the national minimum wage rate on the South African economy. After evaluating the impact of the national minimum wage against a list of seven economic factors, of which unemployment is arguably the most important, the Commission must then recommend increases (or decreases, or no change) to the national minimum wage rates specified in Schedules 1 and 2 of the NMW Act to Government. Legislation Background to the NMW Increases NMW Act Section 4(2) Any minimum wage rate that is not reviewed regularly would soon fall behind inflation and cease to be relevant. Section 4(2) of the NMW Act provides that the rates can be changed on an annual basis, and sections 6 to 14 establish the National Minimum Wage Commission and assign to it responsibilities and duties. NMW Act Section 9 Section 9 sets out the composition of the Commission, as follows: 1. A chairperson appointed by the Minister 2. three members nominated by organised business 3. three members nominated by organised community 4. three members nominated by organised labour, and 5. three independent experts, who are knowledgeable about the labour market and conditions of employment, appointed by the Minister. NMW Act Section 6 Section 6 puts a duty on the Commission to review the national minimum wage annually and make recommendations to the Minister on any adjustment (i.e. an increase, no change, or a decrease) of the wage rate. NMW Act Section 7 For the purpose of the annual review, the Commission must in general promote: 1. the medium-term targets referred to in section 11(d) (to set medium-term targets for the minimum wage) 2. the alleviation of poverty, and 3. the reduction of wage differentials and inequality. When considering changes to the rates, the Commission must consider the following economic factors: 1. inflation, the cost of living and the need to retain the value of the minimum wage 2. wage levels and collective bargaining outcomes 3. gross domestic product 4. productivity 5. ability of employers to carry on their businesses successfully 6. the operation of small, medium or micro-enterprises and new enterprises 7. the likely impact of the recommended adjustment on employment or the creation of employment, and 8. any other relevant factor. National Minimum Wage Rates – Increases In a welcome acknowledgement of the economic role that payrolls play, in 2021 the National Minimum Wage Commission aligned the effective date of changes to the minimum wage rates with the start of the tax year. Government Gazette No. 48094 issued on 21 February 2023 increased the National Minimum Wage rates that are specified in Schedule 1 and Schedule 2 of the National Minimum Wage Act with effect from 1 March 2023. National Minimum Wage Hourly rates for the Four categories of workers other than Learners NATIONAL MINIMUM WAGE Rate/hr Rate/hr Rate/hr Rate/hr Rate/hr Worker Categories 1-Jan-19 1-Mar-20 1-Mar-21 1-Mar-22 1-Mar-23 General workers 20.00 20.76 (3,8%) 21.69 (4,5% 23.19 (6,9%) 25,42 (9,6%) Farm workers 18.00 18.68 (3,8%) 21.69 (16,1%) 23.19 (6,9%) 25,42 (9,6%) Domestic workers 15.00 15.57 (3,8%) 19.09 (22,6%) 23.19 (21,5%) 25,42 (9,6%) Public Works workers 11.00 11.42 (3,8% 11.93 (4,5%) 12.75 (6,9%) 13,97 (9,6%) Note: 1. In terms of section 4(3), the minimum wage rate in respect of workers in the extended public works program must be increased by the same percentage as for general workers. 2. The Minister decided on an across-the-board increase of 9,6% resulting in a minimum R25,42 per hour. 3. This is pretty stiff - for the year to January, the national inflation rate was 6,9% (and Budget 2023 anticipates inflation increases at 4,9% for the year ahead). 4. R25,42 per hour equates to R203,36 per day, R1 016,80 per week, and R4 406,13 per month on average. In a recent announcement in February 2023, the Minister stated that farm workers and domestic workers: “… are generally unorganized and vulnerable, and without the introduction of the National Minimum Wage Act, they would have continued to endure exceedingly low wage levels and poverty. This significant increase [9,6%] will benefit 892 000 domestic workers who are overwhelmingly women, and 800 000 farmworkers.” Weekly Minimum Wage rates for Learners in terms of Section 17 of the Skills Development Act LEARNERS Credits Min Min Min Min Min Already Wage Wage Wage Wage Wage NQF Levels Earned 1-Jan-19 1-Mar-20 1-Mar-21 1-Mar-22 1-Mar-23 Level 1 to 2 0 to 120 301.01 312.45 326.51 349.04 382.55 121 to 240 601.99 624.87 652.99 698.05 765.06 Level 3 0 to 120 301.01 312.45 326.51 349.04 382.55 121 to 240 566.93 588.47 614.95 657.38 720.49 241 to 360 928.11 963.38 1 006.73 1076.19 1 179.50 Level 4 0 to 120 301.01 312.45 326.51 349.04 382.55 121 to 240 602.05 624.93 653.05 698.11 720.49 241 to 360 928.11 963.38 1 006.73 1 076.19 1,179.50 361 to 480 1 354.51 1 405.98 1 469.25 1 570.63 1,721.41 Level 5 to 8 0 to 120 301.01 312.45 326.51 349.04 382.55 121 to 240 652.15 676.93 707.39 756.20 828.80 241 to 360 975.75 1 012.83 1 058.41 1 131.44 1,240.06 361 to 480 1 374.61 1 426.85 1 491.06 1 593.94 1,746.96 481 to 600 1 755.84 1 822.56 1 904.58 2 036.00 2,231.46 Increase Percentage Rate 3,8% 4,5% 6,9% 9,6% All categories of learners have been granted a 9,6% increase effective from 1 March 2023 (the previous increase was 3,8% from 1 March 2020, 4,5% from 1 March 2021, and 6,9% from 1 March 2022). Increases to Sectoral Determinations The increase to the NMW rate affects sectoral determination wage rates set that are higher than the NMW. These higher wage rates must be increased by the same increase percentage as that for general workers and are specified in Gazette 48094 for: 1. Sectoral Determination 1: Contract Cleaning Sector 2. Sectoral Determination 9: Wholesale and Retail Sector. The detail of the job levels and minimum wage rates can be found in the Gazette. National Minimum Wage Act - Important Definitions Definition of ‘Worker’ in the National Minimum Wage Act The BCEA defines an employee to be: “any person, excluding an independent contractor, who works for another person … and who receives, … remuneration” To prevent employers from falsely classifying employees as independent contractors and paying them less than the NMW rate, the NMW Act was amended at a late stage of its creation to define a “worker” by removing the exclusion of independent contractors from the BCEA definition of an employee: “any person who works for another and who receives, … any payment for that work whether in money or in kind. This means that if the above definition is satisfied, it is possible that while they are not BCEA employees, common law independent contractors can be workers in terms of the NMW Act definition and they must then be paid at least the national minimum wage rate. Definition of ‘Wage’ in the National Minimum Wage Act “Wage” is a subset of ‘remuneration’ (‘wage’ is always ‘remuneration’ but amounts that are ‘remuneration’ are not always ‘wage’), and is defined in the BCEA as follows: “wage” means the amount of money paid … to an employee in respect of ordinary hours of work or, …”. The NMW Act definition is identical to the BCEA definition except that the term “employee” has been replaced by that of “worker”, as follows: “wage’’ means the amount of money paid … to a worker in respect of ordinary hours of work or, …”. ‘Money’ means ‘cash’, therefore employer-paid contributions and benefits are not ‘wage’. Any payment that is not made in respect of “ordinary hours of work” such as lump sum payments, allowances, premium payments such as overtime or shift premiums, as well as incentive payments such as bonuses or commissions, is not ‘wage’ as defined, and must not be included when checking the employee’s wage rate per hour against the national minimum wage rate per hour. *** PAGSA members can refer to Newsflash 2022-06 2.6 History of UIF, BCEA and COIDA Earnings Thresholds Table: Summary of the changes to the thresholds for UIF, the BCEA, the Compensation Fund, and the NMW Rates UIF LIMIT FOR CONTRIBUTIONS UIF LIMIT FOR BENEFITS BCEA EARNINGS THRESHOLD COIDA EARNINGS THRESHOLD NMW ACT GENERAL WORKERS Effective Monthly Effective Monthly Effective Annual Effective Annual Effective Per Hour 1 Apr 2002 R8 099 1 Apr 2002 R8 099 1 Mar 2008 R149 736 1 Apr 2017 R403 500 1 Apr 2003 R8 836 1 Apr 2003 R8 836 1 Jul 2011 R172 000 1 Mar 2018 R430 944 1 Oct 2005 R10 996 1 Oct 2005 R10 996 1 Jul 2012 R183 008 1 Mar 2019 R458 520 1 Mar 2019 R20,00 1 Jul 2006 R11 662 1 Jul 2006 R11 662 1 Jul 2013 R193 805 1 Mar 2020 R484 200 1 Mar 2020 R20,76 1 Feb 2008 R12 478 1 Feb 2008 R12 478 1 Jul 2014 R205 433 1 Mar 2021 R506 473 1 Mar 2021 R21,69 1 Oct 2012 R14 872 1 Oct 2012 R14 872 1 Mar 2021 R211 596,30 1 Mar 2022 R529 264 1 Mar 2022 R23,19 1 Jun 2021 R17 712 1 Apr 2017 R17 712 1 Mar 2022 R224 080,48 1 Mar 2023 R563 520 1 Mar 2023 R25,42 Note that only the history of the National Minimum Wage Rate for ‘General workers’ is recorded in the above table, but that from 1 March 2022 the rate of R23,19 also applies to Farm workers and to Domestic workers. This same principle also applies to years after 2022. Due to lack of space, the hourly minimum wage rate for Public Works Program workers and the weekly minimum wage rates for Learners are not recorded in the above history table. See the ‘Increases to the National Minimum Wage Rates’ section above for more details.  

Chapter 1. Introduction
1.1 Scope of the Legislation and Regulations
This workbook focuses on the changes to employment-related tax and labour legislation, as well as on related administration requirements that are specified by regulation, notice or specification document. The following Acts, Bills, Regulations and Notices are discussed in this workbook.
AMENDMENTS TO LEGISLATION
The tax amendment Bills were issued on 29 July 2022 and after comments and final changes, were promulgated (signed into law by the State President) and issued as final Amendment Acts on 5 January 2023:
1. Taxation Laws Amendment Act [TLAA]
This Act deals with the substantive changes to the Income Tax Act proposed in the 2022 budget.
2. Tax Administration Laws Amendment Act [TALAA]
This Act deals with the administration-related changes proposed in the 2022 budget to the various Acts that fall under SARS.
3. Rates and Monetary Amounts and Amendment of Revenue Laws Act [Rates Act]
This Act confirms the tax tables, rebates and threshold changes proposed in the 2022 Budget.
4. Draft Revenue Laws Amendment Bill [Revenue Bill]
This Bill introduces the ‘Two-pot’ retirement system reforms (postponed for a year).
Labour Law Amendment Bills:
1. Final Compensation for Occupational Injuries and Diseases Amendment Bill [COID Bill]
2. Final Employment Equity Amendment Bill [EEA Bill].
REGULATIONS and NOTICES
1. Gazette No. 44702 Compensation Fund regulation issued on 15 June 2021.
Specifies minimum assessment amounts but it is unsigned, undated, and with no effective date.
SPECIFICATIONS
1. SARS PAYE BRS (Business Requirements Specification) version 22.0 issued on 24 February 2023.
Specifies the tax certificate fields, formats, and validation rules that payrolls must obey for 2023.
Terminology Conventions used in this Workbook
A reference to ‘he’ or ‘his’ includes ‘she’ or ‘her’ in the case of a female taxpayer, and ‘it’ or ‘its’ in the case of a taxpayer other than an individual and is not intended to be discriminatory. The following abbreviations might be used in this workbook –
• ITA Income Tax Act
• TLAA Taxation Laws Amendment Act
• TALAA Tax Administration Laws Amendment Act
• SDLA Skills Development Levies Act
• UICA Unemployment Insurance Contributions Act
• ETIA Employment Tax Incentive Act
• BCEA Basic Conditions of Employment Act
• LRA Labour Relations Act
• EEA Employment Equity Act
• UIA Unemployment Insurance Act
• COIDA Compensation for Occupational Injuries and Diseases Act
• PAGSA Payroll Authors Group of South Africa

The following is news flash 2024/03 published by the PAGSA on February 12, 2024 regarding Increase to the National Minimum Wage (NMW) rate

INCREASES TO THE NATIONAL MINIMUM WAGE RATES

NMW Commission

Amongst other matters, the National Minimum Wage Act (NMW Act) establishes the 13-person National Minimum Wage Commission and tasks it with the duty to every year investigate and review the impact of the national minimum wage rates on our economy.

Of general interest is that the first four-year term of the NMW Commission appointed in January 2019 in terms of the NMW Act came to an end on 31 January 2024, and the second NMW Commission has now been appointed.

Professor Adriaan van der Walt has been replaced by academic and economist Professor Imraan Valodia as the Chairperson of the new Commission and he is also one of the four independent experts that make up the 13-member Commission. The other twelve members of the Commission represent organised business, organised community, and organised labour.

After evaluating the impact of the national minimum wage rates against a list of seven economic factors during the year (of which unemployment is arguably the most important), the NMW Commission then recommends increases (or decreases, or no change) to the wage rates specified in Schedules 1 and 2 of the NMW Act to Government for consideration.

This year, the final decision by the Government was announced in a media release issued on 3 February 2024 by the Minister of Employment and Labour.

While the new hourly rates have not yet been confirmed by a notice in the Government Gazette, they can be relied on and are effective from 1 March 2024.

The National Minimum Wage Rates

The following table lists a history of the increases since January 2019 and the new minimum wage rates for the four categories of workers other than learners that are focused on by the NMW Act.

National Minimum Wage Hourly rates for the Four Categories of Workers other than Learners
NATIONAL
MINIMUM WAGE Rate/hr Rate/hr Rate/hr Rate/hr Rate/hr Rate/hr
Worker Categories 1-Jan-19 1-Mar-20 1-Mar-21 1-Mar-22 1-Mar-23 1-Mar-24
General workers 20.00 20.76 (3,8%) 21.69 (4,5% 23.19 (6,9%) 25,42 (9,6%) 27,58 (8,5%)
Farm workers 18.00 18.68 (3,8%) 21.69 (16,1%) 23.19 (6,9%) 25,42 (9,6%) 27,58 (8,5%)
Domestic workers 15.00 15.57 (3,8%) 19.09 (22,6%) 23.19 (21,5%) 25,42 (9,6%) 27,58 (8,5%)
Public Works workers 11.00 11.42 (3,8% 11.93 (4,5%) 12.75 (6,9%) 13,97 (9,6%) 15,16 (8,5%)

The new hourly minimum wage rate of R27,58 per hour translates into a weekly wage of R1 103,20 for an 8-hour per day, 5-day week, and in turn this equates to a monthly minimum wage of R4 780,53.

The table of weekly wage rates per NQF level for learners in terms of the Skills Development Act is not yet available and will presumably be published later this month in the Government Gazette that confirms the new hourly minimum wage rates. As a guideline, in the past the same increase percentage (8,5%) that is applied to the hourly minimum wage rates for the worker categories has also been applied to the weekly minimum wage rates for learners.

Already available on the Department of Labour’s web site are the new minimum wage rates for employees employed in the Contract Cleaning and Wholesale and the Retail sectors that have also been increased.

Increase Percentage

As can be seen from the above table, the increase from 1 March 2022 to 1 March 2023 was a hefty 9,6%.

This year’s increase of R2,16 per hour from R25,42 to R27,58 represents a percentage increase of 8,5%.

While this is less than the previous year’s 9,6%, it is still considerably higher than the year-on-year Consumer Price Increase of 5,1% that was published in January 2024.

This indicates the continued intention of the Government to increase the minimum hourly wage rates at a rate higher than the cost of living to create better living conditions and to improve the financial position of low-income workers.

However, for employers, especially those that operate on slim margins, the increase in wage costs is a serious concern and is likely to result in a review of current financial strategies, business models, pricing mechanisms, and levels of employment.

Concept of Wage for the purposes of the NMW Act

Note that it is an unfair labour practice for an employer to unilaterally change working hours or other employment conditions(such as the wage rate) to comply with the national minimum wage rates specified from year-to-year in terms
of the NMW Act.

According to the Department of Labour’s media release:
“The [wage] amount does not include payment of allowances (such as transport, tools, food or accommodation) payments in kind (board or lodging), tips, bonuses and gifts among others.”

Resulting from a recent Labour Appeals Court Judgement regarding the calculation of ‘wage’, the concept and application of ‘wage’ for the purposes of the NMW Act will be discussed in considerable detail in a PAGSA Newsflash that will be issued shortly.

Regards,

Rob Cooper

The following is news flash 2024/04 published by the PAGSA on February 13, 2024 regarding Increase to the National Minimum Wage rates for Learners

INCREASES TO THE NATIONAL MINIMUM WAGE WEEKLY RATES FOR LEARNERS

PAGSA Newsflash 2024-03 was issued on 11 February and discussed the principles and processes behind the increases to the hourly national minimum wage rates for the four categories of workers in South Africa.

Prior to the issue of this Newsflash, I was waiting for the Government notice to be issued that specifies the increases to the weekly national minimum wage rates for learners in terms of the Skills Development Act, but decided to not wait any longer and issued the minimum hourly rates for workers.

One of our members pointed out that the Government notice had in fact already been issued – how I missed it, I don’t know – so here are the tables that specify the weekly minimum wage rates for learners.

Weekly National Minimum Wage Rates for Learners

The history of the weekly minimum wage increases and the weekly rates for 2023/24 are listed in the following table.

Weekly Minimum Wage rates for Learners in terms of Section 17 of the Skills Development Act
LEARNERS
Credits Min Min Min Min Min Min
Already Wage Wage Wage Wage Wage Wage
NQF Levels Earned 1-Jan-19 1-Mar-20 1-Mar-21 1-Mar-22 1-Mar-23 1-Mar-24
Level
1 to 2
0 to 120 301.01 312.45 326.51 349.04 382.55 415.07
121 to 240 601.99 624.87 652.99 698.05 765.06 830.09
Level
3
0 to 120 301.01 312.45 326.51 349.04 382.55 415.07
121 to 240 566.93 588.47 614.95 657.38 720.49 781.73
241 to 360 928.11 963.38 1 006.73 1076.19 1 179.50 1279.76
Level
4
0 to 120 301.01 312.45 326.51 349.04 382.55 415.07
121 to 240 602.05 624.93 653.05 698.11 720.49 830.17
241 to 360 928.11 963.38 1 006.73 1 076.19 1,179.50 1279.76
361 to 480 1 354.51 1 405.98 1 469.25 1 570.63 1,721.41 1867.73
Level
5 to 8
0 to 120 301.01 312.45 326.51 349.04 382.55 415.07
121 to 240 652.15 676.93 707.39 756.20 828.80 899.25
241 to 360 975.75 1 012.83 1 058.41 1 131.44 1,240.06 1345.47
361 to 480 1 374.61 1 426.85 1 491.06 1 593.94 1,746.96 1895.45
481 to 600 1 755.84 1 822.56 1 904.58 2 036.00 2,231.46 2421.13
Increase
Percentage
Rate
3,8% 4,5% 6,9% 9,6% 8,5%

All categories of learners have been granted an 8,5% increase effective from 1 March 2024 (the previous percentage increases per year are shown in the above table).

Regards,
Rob Cooper

The following is news flash 2024/07 published by the PAGSA on February 14, 2024 regarding SARS Tax Directive Testing

SARS: TAX DIRECTIVE TRADE TESTING DATES AND SOFTWARE IMPLEMENTATION

SARS has issued a notice on 6 February 2024 with regards to the trade testing of the tax directive system.

SARS NOTICE
SARS will introduce enhancements to the Tax Directives process as indicated in the IBIR-006 Tax Directives Interface Specification Version 6.601. Trade testing is planned to start on 12 February 2024 to prepare for the implementation of the software by end February 2024. In the event that dates are changed, SARS will communicate accordingly.

The Tax Directives Interface Specification is available here and you are encouraged to review it prior to testing.

Please follow these steps to submit test files:
Step 1: Before testing can commence, you will need to email 10 taxpayer reference numbers to [email protected] to ensure the numbers are active. In the email subject line, use “Tax reference numbers for Trade Testing”. A maximum of 10 taxpayer reference numbers will be allowed.
Step 2: You will be notified via the same email address to confirm when testing may commence.

For trade testing queries please email [email protected].

Regards,
Rhona van Taak

The following is news flash 2024/08 published by the PAGSA on February 19, 2024 regarding SARS New Complaints contact number

SARS: NEW COMPLAINTS NUMBER

SARS has issued a notice on 16 February 2024 indicating a change to their complaints toll-free number. The notice can be access via the following link: https://www.sars.gov.za/latest-news/new-sars-complaints-number/

SARS NOTICE
The SARS Complaints Management Office (CMO) contact number has changed to a toll-free number. The new CMO number is 0800 12 12 16 and not 0860 12 12 16 anymore. For more information on the complaints process, see the Lodge a complaint webpage.

Regards,
Rhona van Taak

The following is news flash 2024/09 published by the PAGSA on February 19, 2024 regarding SARS: Draft IN on Employers failure to deduct employees tax (comments invited)

IN herein is refered to as an Interpretation Note

SARS: EMPLOYERS FAILURE TO DEDUCT EMPLOYEES’ TAX (COMMENTS INVITED)

SARS has issued a draft interpretation note on 16 February 2024 with regards to the “Consequences of an Employer’s failure to deduct/withhold employees’ tax. The notice can be access via the following link:

https://www.sars.gov.za/legal-lprep-drafts-2024-05-draft-in-consequences-of-an-employers-failure-to-deduct-orwithhold-employees-tax/

Please submit your comments before 11 March 2024 to [email protected] to enable us to submit it before the due date to SARS.

This draft Interpretation note explains all aspects relating to the employer’s responsibility to deduct employees’ tax as well as the consequences for the employer and the employee.

Regards,
Rhona van Taak

The following is news flash 2024/10 published by the PAGSA on February 22, 2024 regarding SARS Tax Directive System implementation

SARS: TAX DIRECTIVE SYSTEM IMPLEMENTATION

SARS has issued a notice with regards to the tax directive system implementation. The notice can be access via the following link: https://www.sars.gov.za/latest-news/tax-directives-changes-and-enhancements-2/

Regards,
Rhona van Taak

SARS NOTICE

SARS plans to introduce enhancements to the Tax Directives system on Friday, 23 February 2024, in line with the IBIR006 Tax Directives Interface Specification Version 6.601.

The following enhancements will be introduced:
o Taxation of local and foreign income, which will cater for South African citizens who earned income both locally and abroad in one Year of Assessment, but who do not qualify for 10(i)(o)(ii).
o Free portability between funds, such as with transfers to unclaimed benefit funds:
▪ The provisions of the Income Tax Act confirm that a deduction equal to the value of the amount transferred will be allowed as a deduction for any transfer from a pension fund and pension preservation fund (including an unclaimed-benefit pension preservation fund).
▪ This means that the transfer will be tax neutral.
▪ The update to the directives system will allow the “Transfer – Unclaimed Benefits” (code 48) to account for transfers between pension, preservation, and provident funds, and unclaimed-benefit funds of each type.
o Free portability between funds: the following fund types will be added to the eFiling RT01 screen drop-down menu:
▪ Unclaimed Pension Preservation Fund.
▪ Unclaimed Provident Preservation Fund.

Please do not submit Tax Directives files on the current form from after 16:00 on 23 February 2024. SARS will queue and process such files after we have upgraded the Tax Directive system.

SARS values your support and collaboration, as always.

The following is news flash 2024/12 published by the PAGSA on March 02, 2024 regarding NMW Act: LAC Judgement

LABOUR APPEALS COURT JUDGEMENT: NMW ACT – CALCULATION OF WAGE (QUANTUM FOODS)

NMW herein after refers to the National Minimum Wage

INTRODUCTION
An article published in December 2023 by one of the PAGSA’s partners brought this landmark Judgement by the Labour Appeals Court (LAC) in the matter of Quantum Foods (Pty) Ltd v Commissioner H Jacobs N.O. and Others (JA85/2022) [2023] ZALAC 27, to the attention of the PAGSA.

The purpose of this Newsflash is to bring this judgement by the LAC to the attention of PAGSA members, to explain the judgement as best possible, and to point out the implications of its implementation by payroll suppliers and employers.

For your convenience, the following documents are included in the Appendix of this Newsflash:
1. Appendix A: The article referred to above
2. Appendix B: The LAC judgement in full
3. Appendix C: Extracts – National Minimum Wage Act (NMW ACT) & Basic Conditions of Employment Act (BCEA).

Before reading further, it would be best to go through the information in Appendix A (the history of the progression of the case from the CCMA to the Labour Appeals Court) as well as the full LAC Judgement report in Appendix B.

The Facts of the Case
The facts of the case are summarised in clause [2] of the LAC Judgement, copied from Appendix B for your convenience:
“[2] In an attempt to bring its employees’ wages in line with the prescripts of the [NMW] Act, the appellant (Quantum Foods) restructured its payslips to include a contractual bonus, as well as the contributions it paid to a provident fund on behalf of its employees. The bonus may, at an employee’s election, either be paid annually or in equal monthly payments
Once those amounts were factored in, the wages met the minimum threshold prescribed by the [NMW] Act.”
Refer also to clauses [12] to [16] of the judgement.

LAC JUDGEMENT – THE ‘BOTTOM LINE’

The LAC judgement in clause [33] concludes that the following types of payments by an employer to, or on behalf of, an employee, must be included when calculating ‘wage’ for the purposes of the NMW ACT:
1. Contractual (or non-discretionary) bonuses, and
2. Employer-paid contributions on behalf of an employee to a Provident Fund.
Before discussing the judgement in more detail, it is important to take note of the following aspects of the judgement.

Legislation Affected by the LAC Judgement
The Court was not called upon to apply the facts of the case to the BCEA. The LAC judgement is therefore applicable to the NMW ACT only, specifically to the ‘Calculation of Wage’ provided for in section 5(1) of the NMW ACT, and it must not be applied when calculating the value of ‘wage’ for the purposes of the BCEA.
This is discussed in more detail in a later section.

Implementation of the LAC Judgement by Payrolls and Employer
The Labour Appeals Court is the highest labour court in the country, barring the Constitutional Court that can sit on labour law matters. The judgement must be applied by payroll suppliers and employers going forward.

Effective Date of the LAC Judgement
Our assumption is that the judgement became effective from the date that it was delivered (18 October 2023).

LAC JUDGEMENT – CONTRACTUAL BONUSES

‘Contractual’ (or non-discretionary) bonuses are those bonuses where the employee has a contractual entitlement to be paid the bonus by the employer. The employer has no choice (or discretion) to not pay the bonus.

NMW ACT section 5(1) specifies how to calculate ‘wage’ for the purposes of the NMW ACT, and section 5(1)(c) excludes ‘gratuities’ from the calculation of wage as follows:
“5. Calculation of wage.—
(1) Despite any contract or law to the contrary, the calculation of a wage for the purposes of this Act is the amount payable in money for ordinary hours of work excluding —
(c) gratuities including bonuses, tips or gifts; …” [my emphasis added]

On the first reading of section 5(1)(c), it appears that all bonuses (i.e. both contractual and non-contractual bonuses) are excluded from the calculation of ‘wage’ by section 5(1)(c).

However, the LAC interpreted section 5(1)(c) to mean that only those bonuses that are gratuitous (or discretionary) are excluded from the calculation of wage. Because contractual bonuses must be paid, they are not gratuitous, and are therefore not excluded from the calculation of wage by section 5(1)(c).

The result is that all contractual bonuses must be included in the calculation of ‘wage’ in terms of section 5(1)(c) for the purposes of the NMW ACT.

PAGSA Comments – Contractual Bonuses

Contractual Bonuses must have a Contract
To be a ‘contractual bonus’, a binding contract must be in place, as stated in clause 19 of the LAC Judgement:
[19] Mr Niewoudt, who appeared for Quantum Foods, submitted that the term “bonus” can either denote a gratuitous payment, which is within the discretion of an employer, or a payment that is due in terms of a binding contract, depending on the context in which the term is used. In the latter case, the payment of the bonus does not depend on the whim of the employer but is an enforceable contractual obligation.

An unambiguous bonus contract that is clear on what employees will receive as a contractual right and what is gratuitous (or discretionary), will make it much easier for the employer and the payroll to comply.

The NMW ACT Definition of ‘Wage’
Just for interests’ sake, and although it does not seem to be important, contractual bonuses are now examined to see if they are ‘wage’ as defined by the NMW Act.
Before doing so, note that although a contractual bonus amount might not be ‘wage’ as defined in the NMW Act, in terms of the interpretation of section 5(1)(c) of the NMW Act by the LAC Judgement, it must still be ‘calculated as wage’.
The NMW ACT defines ‘wage’ to be “the amount of money paid or payable in respect of ordinary hours of work”, and this definition is repeated with slightly different wording (‘for’ instead of ‘in respect of’) in section 5(1).

In other words, to be ‘wage’, the amount must:
1. Be paid in money (cash), and
2. It must be paid in respect of ordinary hours of work.
If these two conditions are not met, then the amount paid is not ‘wage’ by definition.

Contractual bonuses are paid in money (cash), thereby meeting the first condition, but how does one determine if an amount of money is paid in respect of ordinary hours of work?

The answer is widely understood to be that the cash amount paid must be directly based on (or calculated from) the number of ordinary hours worked during a period of employment such as a day, or a week (commonly referred to as a ‘weekly wage’), or a month (commonly referred to as a ‘monthly salary’).

The question that then follows is: Are contractual bonuses paid in respect of ordinary hours of work?
To answer this question, one would have to examine the nature (substance) of the contractual bonus.

A ‘13th Cheque’ type of contractual bonus is certain to meet this condition because it is in essence an accumulated monthly ‘salary’ or weekly ‘wage’ amount that for convenience (or other reasons) is paid as a single lump sum in a specified month of the year.

But it is possible that other types of contractual bonuses including but not limited to various flavours of retention and attendance bonuses are not paid in respect of ordinary hours of work and are therefore not ‘wage’ by definition.

But these bonuses are contractual, therefore in terms of the LASC Judgement, they must be factored into the ‘calculation of wage’ as specified by section 5(1) for the purposes of the NMW Act.

As an administration aside, in the months in which the ‘13th Cheque’ bonus is not paid, the value of ‘calculated’ wage will not only be less than what it will be in the bonus month – it might also be less than the prescribed national minimum
wage in those 11 months (but not in the bonus month).

The practical solution is to pay the 13th Cheque in monthly payments and to change the bonus contract accordingly (as Quantum Foods did), in which case it becomes what it is in substance, a monthly salary (or wage).

The LAC Judgement Rationale

It is interesting to note that in reaching the conclusion that all contractual bonuses must be calculated as ‘wage’, it appears from an examination of the Judgement clauses, that although both the definition of ‘wage’ in the NMW ACT and the wording in section 5(1) ‘Calculation of Wage’ that refers to “for ordinary hours of work” were referred to in clause [29] of the Judgement (copied into the section below), they were not taken further into consideration by the LAC.

The LAC judgement concludes that because a contractual bonus is not a gratuity:
• It is not excluded from the calculation of ‘wage’ by section 5(1)(c)
• If it is not excluded, then it is included in the calculation of ‘wage’ for the purposes of meeting the national minimum wage rate set by the NMW ACT.

LAC JUDGEMENT – EMPLOYER-PAID CONTRIBUTION TO A PROVIDENT FUND

Clauses 29 and 30 of the LAC Judgement explain the court’s reasoning when concluding that contributions “payable” to a Provident fund by the employer on behalf of an employee must be included in the calculation of ‘wage’ for the purposes of the NMW ACT.

“[29] I now turn to the issue of the provident fund contributions. It is instructive that section 5(1) does not expressly include or exclude such payments. The question therefore arises as to whether it is ‘payable’ to employees “in money for ordinary hours of work” and whether it falls under any one of the exclusions.
[30] A reasonable construction of the term ‘payable’ in accordance with the abovementioned canons of interpretation can only mean “that which is required to be paid in money to an employee”. It would accordingly include any payment to be made on his or her behalf. Any other interpretation would simply not make any sense and I did not understand Mr Bayi to contend otherwise.”
Further, clause 31 states: “[31] The provident fund contributions paid by Quantum Foods on behalf of its employees manifestly do not fall under any of the exclusions mentioned in subsections 5 (1)(a), (b), or (c). They must, accordingly, be factored into the calculation of the employees’ hourly rate.”

PAGSA Comments

There are three aspects of Clauses [29], [30], and [31] of the LAC Judgement that are of interest, discussed below.

In Respect of Ordinary Hours of Work
In clause [29], the Judgement raises the question of whether the payment is ‘payable’ to employees “in money for ordinary hours of work”, but then goes on in clause [30] to focus on the word “payable”. As discussed in the previous section, the Judgement appears to not take the words “for ordinary hours of work” into consideration.

The value of an employer-paid contribution amount to a Provident fund is calculated according to the rules of the Provident fund, generally a percentage of accumulated remuneration types, or more commonly, a percentage of Retirement Funding Income (or ‘pensionable salary’).

In addition, in a ‘Cost to Company’ or ‘Package’ remuneration structure, employees are sometimes allowed by choice to increase the calculated value of the contribution if they want to save more towards retirement, which essentially changes the way in which the contribution amount is calculated.

From this can be seen that the value of an employer-paid contribution to a Provident fund is not calculated from, or based on, ordinary hours of work, therefore the contribution is not ‘wage’ as defined by the NMW ACT.

‘Paid or Payable to a Worker’

The NMW ACT defines ‘wage’ to be “the amount of money paid or payable to a worker in respect of ordinary hours of work”. [Incidentally, for the purposes of this Newsflash, the term “worker” is equivalent to the term “employee”] A strict interpretation of the words paid “to a worker” would result in any contribution that is paid directly to the Provident fund by the employer, to not be ‘wage’.

However, the employer could pay the contribution to the employee, who then in turn pays it to the Provident fund. In other words, the employer is acting as an agent (or ‘conduit’) to relieve the employee of the administration burden.

Clause [30] of the LAC Judgement interprets “payable” to mean “… that which is required to be paid in money to an employee”. It would accordingly include any payment to be made on his or her behalf.”

From the above, it appears that the contribution paid by an employer on behalf of an employee to a Provident fund, satisfies the NMW ACT definition of wage that requires the contribution (money) to be paid to a worker.

Payment in Kind

Clause [31] of the LAC Judgement states that “The provident fund contributions paid by Quantum Foods on behalf of its employees manifestly do not fall under any of the exclusions mentioned in subsections 5 (1)(a), (b), or (c). They must, accordingly, be factored into the calculation of the employees’ hourly rate.”

Section 5(1)(b) excludes ‘payments in kind’ from the calculation of wage for the purposes of the NMW ACT. The concept of a ‘payment in kind’ is a difficult one and is outside of the scope of this Newsflash, but it must be discussed briefly and as best possible because NMW ACT section 5(1)(b) excludes:
“any payment in kind including board or accommodation” from the calculation of wage.

If an employer-paid contribution to a Provident fund on behalf of an employee is a ‘payment in kind’, then it would be excluded from the calculation of wage by section 5(1)(b) for the purposes of the NMW ACT.

Clearly, the LAC does not interpret an employer-paid contribution to a Provident fund to be a ‘payment in kind’.
The questions that then follow are:
1. What is a ‘payment in kind’?
2. If an employer-paid contribution to a Provident fund is not a payment in kind, then what is it?

What is a ‘Payment in Kind’

The LAC Judgement is in terms of the NMW ACT, but as a guide to the concept of a ‘payment in kind’, it helps to turn to the BCEA that defines remuneration to be “any payment in money or in kind, …, made … to any person in return for that person working for any other person”. [my emphasis added]

The NMW Act defines ‘wage’, but it does not define ‘remuneration’, nor does it define a ‘payment in kind’.

There are two schools of thought that interpret a ‘payment in kind’ to be either:
1. A non-cash ‘Benefit in kind’, and an employer-paid contribution to retirement funds, medical schemes, etc. OR
2. A non-cash ‘Benefit in kind’.

My understanding is that the International Labour Organisation favours the second option and interprets a ‘payment in kind’ to be a non-cash benefit (i.e. a ‘benefit in kind’) granted by an employer to an employee for services rendered.

In addition, section 5(1)(b) qualifies “any payment in kind” with the words “including board or accommodation“. These qualifying words imply that payments in kind for the purposes of section 5(1)(b) are the non-cash ‘benefits in kind’.
These two points supports the LAC Judgement that concludes in clause [31] that employer-paid contributions to a Provident fund are not payments in kind (because they are not non-cash benefits in kind that are payments in kind).

This means that they are not excluded from the calculation of ‘wage’ by section 5(1)(b), and because they are not excluded, they are included in the calculation of wage for the purposes of the NMW ACT.

If employer-paid contributions to a Provident fund are not payments in kind, then what are they?

The LAC Judgement does not go this far, but to get some guidance to answer this question for the NMW Act, it again helps to refer to the BCEA that defines ‘remuneration’ (but unfortunately does not define a ‘payment in kind’).

For the purposes of the BCEA, it is logical to conclude that employer-paid contributions to a Provident fund:
1. Are ‘remuneration’ by definition (because they are payments “… in money … made … to any person in return for that person working for any other person”).
2. Are not ‘wage’ by definition (because they are not calculated from, or based on, the ordinary hours of work).

For the purposes of the NMW ACT, employer-paid contributions to a Provident fund:
1. Are calculated as ‘wage’ in terms of the LAC Judgement
2. Are not ‘wage’ by definition (because they are not calculated from, or based on, the ordinary hours of work).

One must conclude that this last seemingly contradictory conclusion is simply a case of ‘that’s just how it is’.

IMPLICATIONS OF THE LAC JUDGEMENT

Application of the LAC Judgement to other Employment Legislation

The LAC disagreed with the findings of the CCMA followed by the Labour Court ‘wage’ consists of only the cash payment for ordinary hours worked. Based on its interpretation of sections 5(1)(b) and (c), it concluded that for the purposes of the NMW ACT, contractual bonuses and employer-paid contributions to provident funds must be calculated as ‘wage’.

Therefore, the LAC judgement only applies to the ‘Calculation of Wage’ as specified by section 5(1) of the NMW ACT.

The LAC Judgement does not extend to the BCEA – it only determines what ‘wage’ is for the purposes of the NMW ACT by specifying how it must be calculated in section 5(1). The LAC judgment must also not be applied to the Employment Tax Incentive Act because the ETI Act links its definition of ‘wage’ directly to the BCEA definition of ‘wage’.

The conclusion appears to be that ‘wage’ must be calculated:
1. According to the BCEA definition for BCEA purposes (overtime, sick leave, Sundays worked, etc.).
2. According to the ETI Act definition for ETI Act purposes (Section 4 Compliance with Wage Regulating Measures).
3. According to the LAC Judgement in terms of section 5(1) and for the purposes of the NMW Act (to ensure that employee’s wages are not less than the national minimum wage rates set by the NMW Act).

Lastly, one truststhat the case that resulted in this LAC judgement will not be used as a precedent to encourage a similar case against the BCEA. If this did happen and an equivalent LAC judgement ever applied to the BCEA, the result would be a significant increase in the employer’s cost of the payments to employees that are calculated using BCEA ‘wage’ (overtime, sick leave, Sundays worked, public holidays worked, family responsibility leave).

This is unlikely – the BCEA does not have an equivalent to NMW ACT section 5(1) that specifies how to calculate a wage.

The Schedule referred to in BCEA section 35(5)(a) that was published in Government Gazette No. 24889 on 23 May 2003 specifies how to calculate ‘remuneration’, not ‘wage’.

Payroll Calculations of ‘Wage’

From the above can be seen that the value of ‘wage’ calculated in accordance with the LAC judgement for the NMW ACT, will have a different value from that calculated for the BCEA for those employees that the employer pays:
1. Contractual bonuses, and/or
2. Contributions to a Provident Fund.

Depending on the features that are already provided by their payroll system, payroll suppliers can consider providing for two calculations of ‘wage’ in their payroll systems:
1. One calculation for the purposes of the BCEA definition of wage, and
2. Another calculation for the purposes of the NMW ACT in terms of the LAC Judgement.

Fortunately, as discussed above, a third calculation of ‘wage’ for the purposes of the ETI Act is not necessary.

Employer-paid Contributions to Third-Party entities

The facts of this case are that the payments were made by the employer to a Provident fund.

However, it seems reasonable to conclude that the reach of the LAC judgement can be extended to include employerpaid contributions on behalf of employees to other third-party entities such as pension and retirement annuity funds, medical schemes, funeral schemes, income protection schemes, etc. and that these payments must now be included in the calculation of ‘wage’ because they are not excluded by section 5(1)(b).

This logical extension of the LAC Judgement, coupled to the ‘Atlas Finance’ case in 2022 that came to a similar conclusion regarding commission and that is outside of the scope of this Newsflash, has far-reaching implications for the value of ‘wage’ calculated for the purposes of the NMW Act.

Example of a Wage Calculation in terms of the LAC Judgement

The national minimum hourly wage rate has been increased to R27,58 per hour from 1 March 2024.

Assume that an employee is paid a cash wage of R22,00 per hour in respect of the ordinary hours of work, i.e. below the national minimum wage rate per hour of R27,58 per hour.

In terms of the LAC Judgement, the employer will comply with the national minimum wage if in addition to the cash wage paid at R22,00 per hour, the employer:
1. Pays a contribution to a Provident fund on behalf of the employee that equates to R6,00 per hour, or
2. Pays the employee a contractual bonus that equates to R6,00 per hour.

Re-structuring of the Calculation of Wage for the purposes of the NMW ACT Most employers contribute to third party entities such as retirement funds, medical schemes, funeral schemes, etc. on behalf of their employees, including those in the lower income brackets.

The LAC Judgement now allows employers to take contractual bonuses and/or employer-paid contributions to thirdparty entities into account in addition to the cash ‘wage’ paid in respect of the ordinary hours of work, to meet the minimum wage rate set by the NMW ACT.

This will result in a higher wage value being calculated for the purposes of the NMW ACT than what it was before the implementation of the LAC Judgement, potentially considerably higher than the national minimum wage.

Prior to the LAC judgement, employers that were paying a cash wage lower than the national minimum wage rate would have had no option but to increase the cash wage amount to remain compliant with the national minimum wage rate, and the employer-paid contributions and the contractual bonuses would in any event still have been paid.

Post the LAC judgement, employers, under these circumstances and over time, need not increase the cash wage value.

This potential result appears to be contradictory to the intention of the NMW ACT.

IN CONCLUSION

Despite the uncertainty created by the fact (as explained above) that some types of payments that are not ‘wage’ in terms of the definition of ‘wage’ in the NMW Act, must be calculated as ‘wage’ in terms of the LAC Judgement, it is very important to note that this uncertainty does not change the fact that the LAC judgement must be obeyed.

The Labour Appeals Court is the highest labour court in the country (barring the Constitutional Court that can hear labour law matters). The calculation of ‘wage’ specified in the LAC Judgement for the purposes of the NMW ACT must be applied by payroll suppliers and employers.

It remains to be seen whether the Department of Employment and Labour will in future find that the result of the implementation of the LAC Judgement in the workplace is contrary to the intention of the NMW ACT.

However, as matters stand, it appears unlikely that in the short term the Department of Employment and Labour will amend section 5(1) of the NMW Act to overturn the LAC Judgement.

Lastly, the PAGSA has been busy with this difficult matter since mid-December 2023 and has consulted widely to ensure that we explain the LAC judgement as clearly and as correctly as possible.

However, if you want peace of mind and certainty regarding your circumstances, you are advised to seek legal advice.

Regards,
Rob Cooper

The following is news flash 2024/13 published by the PAGSA on March 06, 2024 regarding Public holiday: 29 May 2024

DECLARATION OF 29 MAY 2024 AS A PUBLIC HOLIDAY

The 29 May 2024 has been declared as a public holiday throughout the Republic of South Africa.

The following link can be use to access the Gazetted notice:
https://www.gov.za/sites/default/files/gcis_document/202402/50165pr157.pdf

Regards,
Rhona van Taak