How will the minimum wage affect your household?

The introduction of the national minimum wage (NMW) of R20 an hour or R3 500 a month for a 40-hour week has stirred many emotions, created arguments and a delay from the May 1 implementation date.

Some believe the NMW will uplift the salaries and wages of the poor to give them a more respectable income, while others argue it will create more unemployment as some employers will have to cut staff to afford to pay the NMW.

One of the main arguments is whether the NMW should apply to those who have been unemployed for a long time. South Africa is struggling with an unemployment rate of 26.7% and if people who have given up looking for work are included, that number rises to 36%, according to Treasury.

The DA favours a minimum wage opt-out for workers, who can choose to take a lesser salary if they so wish. If the DA comes into power, it would introduce a jobseeker’s exemption certificate for workers who have been unemployed for 12 months or more. The SA Federation of Trade Unions has rejected the idea and said the DA exposed its “true capitalist class character” when its federal congress passed the resolution.

While politicians, unions and other labour experts fight it out, it’s clear that it’s only a matter of time before the NMW is passed into law. But how will households who employ workers on a regular or casual basis be affected?

The NMW and households

When the NMW does come into force, it will be applied to all employees, unless they are within one of the industries which have negotiated to pay below the minimum wages in the short term to avoid widespread job losses. This is according to Bryden Morton executive director at 21st Century, a specialist remuneration consultancy.

Households employing domestic and farm workers will also not have to pay the NMW – at least initially.

According to the NMW panel’s report to the deputy president, compiled by Treasury, certain groups of workers will have a longer phase-in to the NMW, including:

• Farm and forestry sector workers: In the first year, 90% of the NMW will apply, with any adjustments to this being done on the basis of evidence; and

• Domestic workers: In the first year, 75% of the NMW will apply, again with any adjustments having to be backed by evidence.

This works out to farm workers being entitled to a minimum wage of R18 per hour and domestic workers R15 per hour, according to labourguide.co.za.

Currently, minimum sectoral determination wages apply, but these will be abolished once the NMW is signed into law. The minister of labour set these sectoral determinations following recommendations made by the employment conditions commission.

They are calculated based on whether one lives in a large metropolitan municipality and built-up area (Area A), or in a smaller municipality (Area B). However, this wage difference based on areas will not apply under the NMW.

According to businesstech.co.za, employers currently paying the minimum sectoral determination wages monthly will pay between 3% and 13% per hour more for domestic workers working for 27 ordinary hours or more in Area A and B, and 7% per hour more for domestic workers who toil for less than 27 ordinary hours in Area B.

Labourguide.co.za adds that the calculation of the minimum wage will exclude: payments for transport, equipment, tools, food or accommodation. It excludes any payment in kind, or board and accommodation, bonuses, tips and gifts.

According to Morton: “Other forms of payment would be add-ons, rather than substitutes for receiving the minimum wage as basic salary.”

Treasury said that domestic and farm workers were singled out for this phase-in because they were vulnerable to being without work.

However, it added in the report: “The panel suggests that the system should be based on universal coverage and that these tiers for farm workers and domestic workers should be done away with over time, to enable the NMW to apply to all workers in South Africa.”

What if you can’t afford the NMW?

Ignoring the law could land you in hot water. “When the legislation comes into effect, it is a law of the country, like any other law, and must be abided by.

“Workers will have the right to report any deviation from the law to their union and/or the Commission for Conciliation, Mediation and Arbitration,” warns Morton.

He explains that households already paying above the NMW will not be affected by the new law. However, those that can’t afford it may have no option but to terminate their employees’ service if they can’t afford the increase.

“As with most markets, when the price increases, demand decreases, as it will cost more to procure within that market. The labour market isn’t any different and the minimum wage could impact on households’ decisions on whether or not to hire staff.”

Another option would be to reduce the number of working hours.

“The minimum wage should be viewed as an effort to raise the standard of living of a large part of the labour force, rather than as a drain on household funds.

“If a household can no longer afford the services of their staff as a result of minimum wage, they could consider hiring staff less frequently,” Morton adds.