National Minimum Wage Regulations & Development: DEL briefing; with Deputy Minister

Meeting report

The Chairperson welcomed the Department of Employment and Labour (DEL) and the National Minimum Wage Commission. The Chairperson laid down the agenda of the meeting which was set to receive an update on the regulations and other developments with regards to the National Minimum Wage.
The Chairperson allowed the Deputy Minister to make opening remarks.

Deputy Minister of Employment and Labour, Boitumelo Moloi, expressed her concern of the recent news of the UK Supreme Court judgement which directed that uber drivers must be classified as employees and not as independent contractors.  She mentioned that this will have far reaching implications for South Africa which is facing class action in that regard. The judgement will be burdensome on the Labour Relations Act together with the Basic Conditions of Employment and the National Minimum Wage. The Portfolio Committee must have a meeting to study the judgement and familiarise itself with the content so that if in the near future they are faced with such they will be ready. 

The CCMA has 72% of its labour force in South Africa and the remaining 28% of the workplace outside. This places huge responsibility on the CCMA and the South African government. This shows an indication of the vulnerability of the labour market. Considering the impact of the pandemic one must consider the possibility of retrenchment. The legislation of SA is bound to protect all forms of jobs. The promulgation of the NMW Act, which came into effect in January 2019, was meant to intervene in wage inequalities and disparities especially in vulnerable sectors. The Department has made significant progress in those areas since 2019, even though high numbers of wage violations still exist. It is the responsibility of workers and employers and not government only to ensure wage violations are diminished, and further to provide opportunities to allow for vulnerable workers to apply for exemption.

Department of Employment and Labour (DEL): National Minimum Wage
Prof Adriaan van der Walt, Chairperson of the National Minimum Wage Commission (NMWC), briefed the Committee on the adjustments with the NMW Act. The NMW Act sets a historic precedent around protecting low-earning, vulnerable, workers, and provides a platform to reduce inequality and the huge disparities in income in the labour market.

Sectoral Determinations
Currently, there are nine sectoral determinations (SD). Despite the existence of these SDs, research shows there are still high wage violations. One of the causes for this is the complexity in the wage levels. Sectoral determinations remain in place, as it also regulates conditions of employment peculiar to a particular sector, and different from what the BCEA regulates.

Annual review of the NMW
The NMW Act requires the NMW Commission to review the NMW annually and to make recommendations to the Minister on any adjustment to the NMW. These adjustments should be made considering evidence on the impact of the NMW on collective bargaining, and its impact on reducing income differentials. It must also consider the prevailing situation in the labour market, the broader economy, and household poverty and inequality.

In undertaking this function, the Commission contracted the Development Policy Research Unit (DPRU) at the University of Cape Town, and the Centre for Social Development in Africa (CSDA) at the University of Johannesburg to undertake a combination of quantitative and qualitative research regarding the impact of the introduction of the NMW. In the first review of the NMW in 2020, the researchers experienced delays in getting approval for an early release of the Labour Market Dynamic Survey and the Quarterly Labour Force Survey data from Stats SA. The Commission therefore recommended increasing the NMW by a Consumer Price Index (CPI) of 3.8%, to raise the hourly NMW rate to R20.76 generally, R18.68 for farm workers, R15.57 for domestic workers, and R11.42 for workers under the Expanded Public Works Programme (EPWP) respectively.

In the next review in 2021, the researchers presented findings to the Commission saying there is no negative impact on employment because of the NMW. It found the introduction of the NMW led to a statistically significant increase, but smaller than expected improvement in wages for the workers it covers. There was broad compliance with the NMW in agriculture, with slightly lower levels in domestic work. Employees considered the minimum wage for farm and domestic workers too low. Following the transitional phase, a majority of the commissioners recommended the minimum wage for the agricultural sector be equalised with the NMW rate of R21.69 per hour, and domestic be pegged at 88% of the NMW. This translates to R19.09 per hour. Ideally, a NMW should be applicable to all employees, but to avoid excessive disruptions, the Act on its promulgation established lower minimums for farm and domestic sectors.

Public comments
About 1 520 written submissions were received from stakeholders around the country. A minority submission was received from the three business representatives of the Commission, wherein business representatives diverged from the majority recommendation and recommended the NMW increase by 3%. It further proposed a phase-in approach over a period of four years for the farm and domestic sectors.

In addition, the Minister considered the legislative requirement to align minimum wages in the agricultural sector with the general NMW; the impact of the Covid-19 pandemic on worker’s wages; poverty and inequality, especially the informal workers and low income earning workers. It was highly expected to see some employers, particularly small employers, face challenges as a result of the proposed increases. These challenges are expected to be mitigated by the exemption process provided for by the NMW Act and its Regulations. An employer who experiences distress or employer organisation acting on behalf of its members, can apply for an exemption from 1 March 2021.

To reach consensus on wages and conditions of employment of vulnerable workers would be ideal for all the parties concerned, but if there is no consensus reached around these issues in the Commission, the majority decision of the Commission prevails.  Further, in as much as the Act allows for written comments around any proposed adjustments, the Minister’s decision is not influenced by the number of comments received, but by the contents attached to those written inputs as well as a range of actual and potential economic impacts. This increase will serve as a starting point to not only cushion the economic blow sustained by workers, particularly the farm labourers and the domestic workers, but will grant them the dignity of acknowledging their value in society.

Discussion
Dr M Cardo (DA) asked how the Department can say with absolute certainty the NMW will not lead to job losses. Before the NMW was introduced 750 000 job losses were estimated and, also over 1.4 million people lost jobs between the fourth quarter of 2019, and fourth quarter of 2020. Those numbers are not only attributed to Covid 19 and the lockdown. 

The two sectors able to absorb unskilled labour on a large scale and reduce the unemployment rate in SA, are the sectors of domestic service, and the agricultural sector. The minimum wage for domestic workers and farm workers increased by 23% and 16% respectively, which is far above inflation. The Department mentioned in passing, the agricultural unions are talking about increased minimisation which will result in further job losses in the agricultural sector.

He asked the Department to explain how it sees the increase in the agricultural sector and the domestic sector as sustainable, especially in light of the government itself reneging on the three year wage agreement it had with public servants. He also asked why the private sector employees should be any different, because it will create strain as it increases. The policy of NMW is to serve the broader policy of reducing poverty and inequality, through the NMW. The NMW might stimulate demand among income households which will primarily consume local goods and services, which will have the effect of increasing demand and soliciting growth. Regarding stimulation of growth, he asked if this growth is seen physically happening in SA.

Lastly, he referred to the 1 520 submissions the Department received from stakeholders around the country. He asked what the breakdown was of the number of submissions by employers and employees. This is because the Department said it is not the number of submissions that matters, but the content, which he believes is ultimately a subjective judgement.  He asked how many of the submissions were in favour of above-inflation numbers in the domestic sector and agricultural sector in particular.

Mr M Bagraim (DA) noted concern for the Expanded Public Works Programme (EPWP). He said the Department has to wait for specific of instructions from the Minister, and it is not going to get a specific instruction from the Minister, because government does not want to pay employees any more than what it has to. Government said it cannot afford more than 12 rand, however suppliers and private sectors have to pay more, and this is odd.

His second concern was the issue of compliance within the farming sector. The Department failed to report on the number of retrenchments which took place. He said he saw it himself. Small town farmers are pushing for retrenchment. This will not result in an increase in wages, if retrenchment takes place.

His third concern was the report sent to the Minister, was not distributed by the Minister to the public. The comments the public saw were without the report, and he found this odd. He questioned if the Department did not think it was better for the report to be seen by the public, for people who wanted to comment.  Commenting mid-air without a report creates problems.

The Department also spoke about informal workers. Informal workers do not get anything near a minimum wage, and it is impossible to monitor such matters.  He expressed his concern regarding small employers who were expected to face retrenchments. Economists are saying small employers are the ones creating the jobs. The Department said these businesses can apply for exemption, but the process is difficult.  One needs an auditor most of the time to help with the process. For this reason, some people decide it is not worth it not to pay the minimum wage, and opt to see an inspector. Companies never see inspectors because of how few there are, and because of insufficient funds to employ inspectors in SA.

His last concern was why the CCMA is treated harshly when it is the body which looks after 70% of the workforce. He asked why the CCMA has few inspectors, because it makes it hard to monitor minimum wage.

Ms C Mkhonto (EFF) said she wanted to know what was done to ensure the affected employees participate in submissions. Most of the employees, specifically domestic workers and farm workers, are illiterate. This means these persons might not have the necessary resources to make submissions.  She wanted to know what was done to make sure the Department reaches out to these employees. The submissions from these persons are few.

Secondly she asked if the Department has, since 2019, monitored compliance. She wanted to know if the Department has capacity to monitor the whole country, and also if it monitors within the affected sectors.

She asked if, since 2019, the Department found employers not complying, and if it has a database of those employers. If this situation exists, she asked what was done with those employers to ensure compliance.

Ms H Denner (FF+) wanted to know what the timeline is for the exemptions process if there is an exemption request.  She wanted to know if it is granted for instance, while the matter is adjudicated, because the process is quite lengthy and difficult. She asked who will adjudicate the exemption requests, and ultimately who will decide.

Regarding EPWP, the Chairperson of the National Minimum Wage Commission said a request must be submitted to the Minister. Ms Denner said, regarding the EPWP workers, it is not the case that parties want starvation wage to be paid, however, there are people who cannot literally afford the minimum wage. She asked how the State can justify the starvation wage of 11 rand an hour, which equates to a starvation wage.

Mr N Hinana (DA) said the promulgation of the NMW was a response to combat poverty, unemployment, and inequality. He asked how the affected traders, namely, the agricultural sectors and domestic worker sector, will be engaged on how to deal with such issues to achieve its main objectives. He believes wherever one goes around SA, those sectors have the most vulnerable and exploited people. These employees do not have any form of security. It sometimes goes as far as, after retirement, most traders own nothing. The promulgation was supposed to restore the dignity of those traders.

His question to the Department was if it has the mechanisms to monitor this. Regarding regulations, the promulgation is implemented to protect those sectors. The small scale farmers can apply for exemption not to pay NMW. There are big industries which also oppose the minimum wage on the grounds it will increase prices, which will affect job security. His question was how the sectors engaged, especially the sectors which opposed the NMW, to allow these sectors to be on board and have a common goal.

The Chairperson noted concern about domestic and farm workers being privately owned sectors. It comes down to opening the door for an inspector to come in and ask questions of the domestic worker, and the inspector also has the power to allow the worker to respond or not. There is also a high level of intimidation in those sectors. This makes workers scared to be interviewed, or scared to respond to questions by the inspectors who come to monitor compliance. She asked if the Commission took all of this into account, because those sectors are highly vulnerable and susceptible to intimidation. At some point, these sectors are even politicised, which leads to worker silence out of fear.

She asked if the Commission looked into this matter, or if it believes it is the responsibility of the Department of Labour to ensure there is compliance and enforcement. She asked if the Department of Labour has the ability and capacity, because it cannot be the responsibility of government to ensure enforcement and compliance. This includes employers. Most employers are not sympathetic and sensitive to employees. She asked the Department to look into which racial groups are affected the most under this issue, including provinces and regions which suffer the most.

Responses
Mr Thobile Lamati, Director-General, DEL,  replied to the question on exemption. When the Department developed the exemption process, it took all the matters raised, into consideration. It looked at the difficulty not only in accessing the system, but also operating the system, and the time it will take for adjudication. All the issues factored in the development of the exemption process. The process does not take more than a day. A person can also single-handedly complete the process. The system is programmed for immediate results.

He replied to the comments made regarding the CCMA, and said the CCMA is not treated badly.  It was emphasised repeatedly, the budget cuts did not only affect the Department of Labour, but all the government departments. The CCMA was the least affected entity. This is because the Department tried its best to protect the CCMA, given the work it does. The Department made sure the CCMA does not suffer the most, compared to the other entities. The question is not if one treats the CCMA badly, but it is rather about allocating limited resources to all the entities, so entities function optimally. The reality is adjustments must be made so service delivery can be addressed.

The Department is able to monitor compliance. The presentation showed, even though there is mayhem in the farming sector, when it comes to inspections completed and research conducted, the farming sector is the most compliant sector. Out of half the complaints the Department received, only three percent are attributed to the farming sector.

The complaints received were about uncovered monies from the different sectors. The Department recovered 105 million for the whole of last year. It conducted 228 000 inspections, of those inspections 217 000 workplaces complied. Only 10 444 did not comply. 10 387 companies were issued with statutory notices which inspectors must issue when there is non-compliance, after which there is a process which follows when companies do not comply. After this there is a prosecution process. The Department has a database of employers who are not compliant. In instances where notices were issued, those employers were referred to court.

A remark was made about the Department not having inspectors, so it makes it hard to monitor compliance, especially in the informal sector. The Department agrees. It is highly probable it will not have enough inspectors given the competing priorities the country has. However, if one looks at the principle of the labour market, it is all based on the principle of self-regulation. It is expected a person who runs a business will be honourable enough to comply with the laws of the country, treat his or her workers with respect, and have a duty of care. This is what the Department expects. The Department does not expect an inspector to go to all the companies in the country. The principle of self- regulation is fought for. The Department believes legislation should not be prescriptive, and companies should be given space to self-regulate. Over the past year, this proved to be difficult because of the high rate of non- compliance. When legislation is changed to factor in the implementation of the law, the Department will be accused of treating businesses with disdain, and are not allowed space to self-regulate.

Although all these hurdles are present, the Department conducts inspections given the limited resources the Department has. It cannot be everywhere. It is the responsibility of the Department to monitor, and not the Commission’s responsibility. The Department gives the Committee an overview of the Annual Plan, together with giving the number of inspections it plans to conduct over a period of time. This is the mechanism it uses to display transparency. It has different kinds of inspections given the limited number of inspectors it has. The areas it inspects uses a system where the vulnerable workers in the different sectors are protected. People present complaints and these matters are treated anonymously. This system worked for a number of years.

The relationship between farm workers, and domestic workers, with employers, are to a large extent a paternalistic relationship. This makes it difficult to monitor. This is especially the case regarding domestic workers reporting non-compliance to the Department, and it makes it difficult for the Department to intervene. If inspections take place, domestic workers will be under strict instructions not to open for anyone unless instructed by the employer. Nevertheless, inspectors go out and conduct inspections, because the law protects inspectors and allows inspectors to go to any workplace and inspect it. In instances where inspectors were denied access to a workplace, the inspectors use the services of the South African Police Services (SAPS) to assist with access to those workplaces. The inspectors also work with stakeholders to make sure the relationship between farm workers and employers improves, to ensure there is compliance with legislation in different sectors.

Mr Thembinkosi Mkalipi, Chief Director: Labour Relations, DEL, replied to the question of job losses. Stats SA reported job losses in 2018–2020, however, did not report the losses as being a result of NMW or any matter related to the state of the market. The research the Department conducted specifically looked at what the effects of the NMW were. The research is available on its website if members of the committee want to scrutinise what led to its conclusion. The research affirms there were job losses, but the job losses are not a result of NMW. There are many factors which influence employment, including the rate of the rand, which increases petrol, and also other factors affecting the labour market.

Replying to the question on how wage increases affect companies and its management, he said the exemption process is available to deal with matters where businesses face problems in paying as mandated to pay. It has the option of applying for exemption to make its case.  Economists report stimulation of demand and this should lead to growth in employment, together with the economy, but one must be aware of factors affecting the price of power, and other factors within the area of growth.
When one looks at the numbers, the majority of people who commented on the paper do not agree to the increase and its sustainability. If the Department looks at the quality of the submission, then it must be sought how to calculate the ratio of Congress of South African Trade Unions (COSATU), Federation of Union SA (FEDUSA), NAPTU and South African Democratic Teachers Union (SADTU) comments. It must be asked if such comments should be counted as one, as it represents over two million workers. It has comments from 1000 companies, together with federations. When looking at comments, the number alone should not be looked at, but the people who make the comments and how it advances government policy.

The Department must set a meeting on the issue of exemptions. It needs a report of what happened with exemptions over the last year, how many companies applied for exemption, the duration and timeframes of the process, and getting a response. The exemption process should work exactly like the tax system. If a person believes the person cannot afford, then the person must be able to submit financial statements so the system does the necessary calculations for exemption. If a person submits the information, within ten minutes a person must get a response. If all the necessary requirements are met, within another ten minutes a report is generated in a form of a letter to allow for exemption. There is a timeframe put in place for persons who went through the auditing process. It sets out when the Department must finalise the report, and depends on if the employer who is applying, supplied all the necessary information correctly.

Of the issue of EPWP, the Commission can only do what the law allows it to do. This law was debated in the National Economic Development and Labour Council (NEDLAC). NEDLAC agreed on how to treat EPWP. All forces in NEDLAC, including business, labour, government, and community, agreed on its treatment in law. The law said clearly, within two years the wages of workers in the domestic department should be equalised. It does not say the same with EPWP, or learnership. Government pays far above the minimum wage, the argument saying government is not prepared to pay the minimum wage is not correct, because employees employed directly by government are paid above the minimum wage. If the Committee and Department want to change the law so EPWP are treated the same as domestic and farm workers, the avenues are available for the Department, Members of Parliament, and the Committee. The Department presently can only implement the law. EPWP wages were increased at the same rate as the minimum wage increase.

The question is how the Department will engage with the affected sectors, and how it will make sure the objectives of the law are met. It is for the Department and its stakeholders to go out and ensure parties and vulnerable workers know their rights so to be able to exercise their rights. There will be advocacy done on 1 March, for the minimum wage, for all parties affected to be included. Exemption is not only for small businesses. It is for any business which cannot afford. All types of businesses can make an application if the business cannot afford the minimum wage, on condition it submits all the necessary documentation for the system to litigate the matter. There are no matters of exemption currently in adjudication, apart from matters sent for the audit.

Prof van der Walt replied to the issues of research outcomes, and said the Commission based its decision on research output. The research for the Commission will be ongoing. The effect of the NMW and its increase will be monitored this year and the next on an ongoing basis.

The percentage for farm and domestic workers came about following difficult debates in the Commission. Since 2019-2021, it is a policy imperative to equalise such matters. The intention was to equalise as the minority.  The Commission cautioned against giving such a high percentage increase for this year, but in the end the structure of the Commission, of the 12 Commission Members, resulted in bargaining as an outcome.

The Commission does not have the domain to entertain the statutory imperative of farm and domestic workers. The Report was published in December. Members of the public were given a month to comment on the report. The Report was available to the public, and was published in the Government Gazette. There were also written representations. In future the Commission should entertain the possibility of having representations face to face, because vulnerable employees such as farm workers and domestic workers would not have the opportunity to make representations to the Commission because of the nature of how it is published in the Government Gazette. There were several representations from non-government organisations (NGOs), which represent the vulnerable.

The Chairperson, in her closing remarks, said the research document will be circulated to Members of the Committee. The research is a debate which is emotive in its nature. However, it is a debate which requires ,Members of Parliament to take the responsibility of interacting with people and asking the difficult questions, with an understanding of the circumstances. The number of inspectors in the country is concerning. Every person in the country has a responsibility to comply with what the law provides for matters which concern domestic and farm workers. The Department must assist the Committee when it conducts inspections. It must audit farms and domestic workers, and look at age, gender, and race, to protect the authority of the law and vulnerable groups. The aim is to expose inequality, abuse, and to create an environment which will enable the Department to do oversight. The Chairperson thanked the Department and the Commission for its presentation, and engagements. The Director-General was asked to provide the information the Department requested within seven days.

The meeting was adjourned.