How government can enforce the minimum wage | Fin24
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How government can enforce the minimum wage

Feb 12 2017 17:46
Lameez Omarjee

Johannesburg – Failing to comply with the national minimum wage could result in fines to employers as part of a penalty to ensure their buy-in, says an analyst.

Speaking to Fin24 by phone Gilad Isaacs, researcher for the National Minimum Wage Initiative, shared ways government could best enforce the policy. This could be through introducing incentives, or sanctions.

Deputy President Cyril Ramaphosa signed the minimum wage agreement of R20 per hour earlier this week. President Jacob Zuma commended the deputy president for overseeing the process during the State of the Nation Address on Thursday.

The agreement was reached between government, business and labour bodies. However, trade federation Cosatu asked to present the full report to its Central Executive Committee before signing the agreement.

READ: Zuma lauds Ramaphosa over national minimum wage deal

The agreement will take effect in May 2018, which Isaacs said was more than enough time for employers to adjust their policies.   

Considering examples where minimum wages were enforced in other countries, Isaacs said there was a trend of small price rises, a small reduction in profit margins, and wages cut in the upper end for businesses. But this was met with an overall increase in consumer spending in the economy.

Government can impose fines on employers who do not comply with the national minimum wage. In cases where there is a prior agreement for wages in a sector, such as agriculture and domestic work where the minimum wage is lower than R3 500 per month, paying employees less than the minimum wage is illegal, said Isaacs.

Other ways a minimum wage can be enforced is through the issuance of certificates of compliance. This is seen in the clothing and textile sector. The certificate of compliance shows employers follow legislation in terms of wages and labour relations.

Not having proof of compliance would make the employer subject to sanctions. This would work in a similar way to which businesses which are not compliant with broad-based black economic empowerment are not eligible for government contracts.

ALSO READ: 10 things every South African must know about R20 wage deal

“Other ways to ensure enforcement occurs is through ensuring that everyone knows about the wage,” said Isaacs. He explained that channels should be available for workers to report violations and prompt inspections.

In South Africa however, this could present a problem as the legal process that follows can be cumbersome. “It can take ages before an employer is fined,” said Isaacs.  

If employers feel they cannot comply with the agreement they need to apply for an exemption, and demonstrate financially why they cannot afford to, he added.

Imraan Mahomed, partner at international law firm Hogan Lovells, told Fin24 that applying for an exemption is a response to avoid unnecessary job losses.

“If you can’t afford to pay workers, apply for an exemption; that way, avoid retrenchments,” he said. The exemption should also give employers enough time to determine how long it will take their business to be capable of affording the national minimum wage. “Employers need to get workers to the threshold. Retrenchment is not the first option,” he said.

ALSO READ: FULL STATEMENT: Ramaphosa agreements on labour, minimum wage

“In the instance (where) employers can’t get an exemption and can’t afford a minimum wage, then retrenchment is likely,” he added.

To ensure they can afford the minimum wage, employers must first determine how many of their employees earn below the threshold. Then they need to determine how many of these employees fall into sectorial wage determinations. If they fall within the sectorial determination, employers would not be in breach of the national minimum wage agreement.

Finally, employers should also consider what the impact of bringing workers onto the national minimum wage threshold will be on their financial year. If this will be problematic financially, they can take steps to apply for the exemption.

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