Submission to National Council of Provinces with regards to National Minimum Wage Bill and related amendments to BCEA and LRA 13 June 2018 Introduction 1. This submission is made by the National Minimum Wage Research Initiative (NMW- RI) at the University of the Witwatersrand with relation to the National Minimum Wage Bill 2017 (NMW Bill) and Basic Conditions of Employment Amendment Bill 2017 (BCEA Bill) with specific attention to issues relating to the institution of the national minimum wage (NMW). 2. The National Minimum Wage Research Initiative (NMW- RI) is an independent research initiative based at the University of the Witwatersrand and overseen by a panel of experts. For the last three years it has provided detailed research on both the viability of a NMW and potential policy approaches. The work of the NMW- RI has been presented to the NEDLAC Wage Inequality Technical Task Team (WITTT) as part of the negotiations over the implementation of a NMW and was drawn upon by the Expert Panel appointed by the Deputy President (Expert Panel). 3. The Deputy President, Minister of Labour, Department of Labour (DoL) officials, Labour Portfolio Committee Members of Parliament and all those involved in the WITTT should be congratulated on the passing within the National Assembly of this momentous piece of labour legislation. Strengths 4. The legislation has a number of significant strengths, amongst others, these include: o Recognising the role the NMW can play in reducing poverty and inequality and spurring domestic demand and productivity increases in the economy; 1 1 see Asghar Adelzadeh and Cynthia Alvillar, The Impact of a National Minimum Wage on the South Africa Economy, National Minimum Wage Research Initiative (University of the Witwatersrand, 2016); Gilad Isaacs, A National Minimum Wage for South Africa, National Minimum Wage Research Initiative (University of the Witwatersrand, 2016); Jana Mudronova, The International Experience of the Relationship between Inequality, Poverty and Minimum Wages, National Minimum Wage Research Initiative (University of the Witwatersrand, 2016). Corporate Strategy and Industrial Development Research Programme School of Economic and Business Sciences, Faculty of Commerce, Law and Management Private Bag 3, Wits 2050, South Africa gilad.isaacs@wits.ac.za www.nationalminimumwage.co.za
o Setting the NMW at an acceptable starting point (R20 per hour) that can be increased over time (subject to qualifications below); 2 o Ensuring universality with appropriate tiers and exemption procedures; o Excluding non- basic wage payments from the calculation of the NMW; o Establishing a dedicated body comprised of the social partners to oversee the implementation, monitoring and revision of the NMW; and o Amendments to the BCEA that recognise the need for better enforcement. Critical outstanding weaknesses 5. A number of weaknesses in the Bills result in: Offering insufficient protections to workers; Failing to take forward either the letter or spirit of decisions taken by the Labour Portfolio Committee (PC); Sidelining a number of aspects of the February 2017 national minimum wage Nedlac agreement between the social partners. 6. The key issues can be summarised as follows: 1. Ensuring the annual increase of the NMW is not eroded by inflation; 2. Providing a clear mandate for a medium- term target to be introduced in reasonable time frames; 3. Ensuring the integrity, capacity and independence of the NMW Commission; 4. The ability of the NMW Commission to review and update sectoral determinations; 5. Taking forward the Nedlac CoP agreement to provide for an investigation on increasing minimum hours from four to five; 6. Ensuring the EPWP wage level eventually aligns with the overall NMW; 7. Preventing employer organisations from arranging a conveyer belt of exemptions; 8. Given the delayed starting date ensuring an increase during 2019. 9. Establishing proper timeframes which, despite the failure to meet the 1 May deadline, ensure the necessary urgency and predictability in taking the NMW forward; 10. Ensuring employer contributions cannot be deducted from the NMW; 11. The proper phasing out of the lower levels for farm and domestic workers; and 12. Specifying the reduction of poverty and working poverty as a motivating factor for the implementation of the NMW. 7. Issue 1 Annual increase: The NMW Bill does not guarantee, or even promote, an annual increase. This violates the Nedlac agreement which notes: It is specifically agreed that the adjustment should not lead to the erosion of the 2 This level falls within the range recommended by the NMW- RI, see Isaacs, A National Minimum Wage for South Africa; and has been publically supported by the NMW- RI, see Gilad Isaacs, Minimum Wage for All a Big Achievement in Improving Lot of Poor, Business Day, 29 November 2016. 2
value of the NMW taking into account all of the above factors. The Bill only instructs the Commission to consider as one amongst other factors retaining the value of the minimum wage rather than specifying that the increase must at least compensate for inflation (unless economic conditions prohibit this) and that the final level of the real increase will be determined by a range of factors. This is not an academic issue. The Expert Panel (chaired by Professor Imraan Valodia who is touted to chair the new NMW Commission) recommended no increase within the first two years. This was explicitly rejected (as shown above) by the social partners in the Nedlac agreement. 8. Issue 2 The medium- term target: The adoption of a medium- term target was a major innovation in the Nedlac agreement in order to ensure the achievement of a meaningful level for the NMW. Strong promotion of a medium- term target offered Government a perfect means of progressively moving beyond the initial perceived low level of the NMW. The Nedlac February 2017 agreement reads: The NMW Commission to be established will, as part of its mandate, establish a medium term aspirational target for the NMW and take into account appropriate benchmarks and International Labour Organization (ILO) guidelines. However, the medium- term target as provided for in the Bill is a damp squib: The medium- term target must only be set within 3 years, with no mention of what benchmarks to use or when it must be implemented by if the target is only reached 3-5 years after it is set, then, in the current formulation, it could take until 2026! The lack of guidance given to the Commission on establishing the target may lead to the sort of paralysis that characterised the NMW negotiations. The omission of the guidelines is deliberate as all of these for example, minimum living levels, the ratio between the average and minimum wage would entail ambitious medium- term targets, which would require improvements significantly above the level of inflation. 9. Issue 3 The independence of the NMW Commission: All social partners agreed on the importance of the independence of the Commission but the legislation has moved in the opposite direction. The international evidence overwhelmingly indicates that the most effective commissions have operational autonomy from government departments. An Achilles heel of the existing Employment Conditions Commission (ECC) has been its lack of resources. The NMW Commission is even more dependent on the DOL than the ECC. The Commission does not have its own budget appropriated by Parliament (as agreed at Nedlac) but now must have funds defrayed from the DoL at their discretion. The Commission has limited operational authority over the Secretariat despite the Parliamentary Law Advisor flagging this as concerning during the PC s deliberations (for example, the Commission could be given joint power in hiring and overseeing staff). This will potentially impact the Commission s autonomy to undertake research, implement complex aspects of its mandate, such as setting a medium- term target, and to independently 3
manage its affairs, and is most concerning regarding its role in amending and adding SDs, as noted below. Ideally the NMW Commission should be located outside the DoL. However, it should not be its own institution, such as the Competition Commission. In particular, the CCMA (given its role in enforcing the NMW) and Nedlac (given the centrality of social partners within the NMW Commission) would be ideal candidates for housing the Commission. It may be too late for this but maximum possible autonomy should be given to the NMW Commission to manage its own affairs and not have to go cap in hand to the DoL every time it wants to do anything, as is the case with the ECC currently. 10. Issue 4 Sectoral determinations: After enormous opposition from the DoL the NMW Commission is now empowered to update existing sectoral determinations (SDs) and institute new ones. However, this appears in the Bill but in a very weak form. The Bill does not stipulate regular reviews of SDs must be undertaken, as is mandated for the NMW (these could be stipulated in a three- yearly cycle). Further, Section 51(3) of the BCEA amendments stipulates that SD wages must increase proportionally to adjustment to the NMW, indicating a desire to not manually review and alter SDs. This is a reversion to the original position of the DoL that sought to phase out the use of the SDs. Regarding instituting new SDs, the Bill leaves it up to the Minister to trigger the investigation needed to create a new SD rather than allowing the Commission discretion to do this off its own bat, thus potentially limiting the institution of new SDs, and upgrading of existing ones. This undermines the Commission s ability to co- ordinate a coherent wage policy using the NMW and SDs in tandem. 11. Issue 5 Guaranteed minimum hours of work: Guaranteeing workers must be paid for four hours of work even if they work less is an international innovation and an advance for workers. However, it but doesn t fully respond to concerns that the hourly reference period for the NMW will be abused by employers, and that stronger protections are needed. The Bill ignores the Nedlac Committee of Principles agreement that the Commission must investigate the feasibility of increasing the minimum number of hours from four to five, something which was captured in an earlier draft of the Bill. 12. Issue 6 EPWP Expanded Public Works Programme: The EPWP has been identified as flagship job creation and poverty alleviation initiatives that should seek to balance work opportunities with wages that make an impact on poverty. The obvious argument against inclusion is that raising the wages of EPWP workers would place too much strain on the national fiscus. However, the unaffordability of EPWP workers being paid the NMW was rebutted by the previous Deputy Director- General of Treasury, who stated that the cost of phasing in the NMW to the EPWP by 2019 would be modest. This is born out by a budget analysis: the 2017/18 estimated EPWP expenditure is 4
R2,407,583,000 not all of which goes towards EPWP stipends, 3 so even a doubling of the wage level would have modest fiscal implications. We propose the EPWP be included in the NMW in a similar manner to domestic and farm workers with a stipulation that the level of the EPWP reach the overall NMW within five years. 13. Issue 7 Exemptions: The ability of employer organisations to apply for exemptions on behalf of their members has been opposed by a range of organisations on the basis that it risks creating a sophisticated conveyer belt of applications. The Nedlac agreement notes that individual businesses should apply and that it is government departments that must be fully equipped to provide the necessary assistance such assistance should be offered by the DoL. The DoL has touted their changing of Section 15(1) on behalf of their members to on behalf of a member as responding to these objections. This is completely untrue, does not address the concerns raised, and was a change suggested, during the Labour PC s deliberations, by the Parliamentary Law Advisor as a narrow technical correction. Further, there is no framework for the exemption regulations (i.e. stipulating broadly what the Minister should take into account when making regulations) as there is in Section 50 of BCEA regarding current exemption mechanisms. It is worth noting that exemptions from the NMW are rare internationally and already abused in South Africa. 14. Issue 8 Start date: We are reliably informed that the implementation date may now be 1 December 2018. This is seven months later than the agreed 1 May 2018 date. If the NMW is only increased (presuming it is increased) on 1 December 2019 this represents a significant loss to workers. The Bill should guarantee that the first review and increase is complete at most nine (not twelve) months following original implementation. 15. Issue 9 Timeframes: All timeframes for promulgation, reviews and amendments to the level have been removed and it is unclear when the NMW Commission will start operating. Some flexibility is understandable given the failure to meet the 1 May 2018 deadline but it creates a great degree of uncertainty. It is essential for predictability in this respect as changes to the NMW will also impact other wages and collective bargaining in the economy. Therefore new target dates should be transparently stipulated. 16. Issue 10 Employer contributions: The Bill makes clear that various payments such as towards transport, in- kind benefits, or tips do not count towards the 3 Daniel McLaren, Realising Right to Decent Work in South Africa (Studies in Poverty and Inequality Institute, 2017). 5
NMW. However, employee contributions towards medical aid schemes, or retirement funds are not mentioned. 17. Issue 11 Phasing out lower tiers: The Nedlac agreement is clear that the lower levels for domestic workers and farm workers should fall away after two years unless research indicates otherwise However, the formulation in the Bill is convoluted. 18. Issue 12 Poverty as a motivating factor: The NMW Bill pays insufficient attention to poverty as a motivating factor behind the implementation of a NMW. The most common motivation for the introduction of minimum wages is to ensure wages meet the needs of workers and their families 4 (as noted by the International Labour Organization Convention No. 131) and thus alleviate poverty. The Expert Panel s report begins with a lengthy discussion of poverty in South Africa, and notes (p. 8): The minimum wage is therefore seen as one of the tools to close the wage gap, including between the genders, and thereby to overcome poverty. There is surprisingly little mention of poverty and working poverty in the Bills. In addition, the ILO also makes a specific point of noting that wages should cover the needs of workers and their families. We further support suggested amendments by the University of Cape Town s Labour and Enterprise Policy Research Group in their Submission to the National Council of Provinces on the National Minimum Wage Bill, the Basic Conditions of Employment Act Amendment Bill, and sections 32 and 49 of the Labour Relations Act Amendment Bill. Proposed amendments to the NMW Bill Preamble Under recognising add: high levels of poverty and working poverty Purpose of the Act (Section 2) Under 2 add: (f) ensure, over time, wages meet the basic needs of workers and their families ; (g) to reduce wage inequality ; National Minimum Wage (Section 3) Amend 4(2)(a) as follows: (2) (a) The Commission must, within 18 months of the commencement of this Act, 4 ILO, Convention C131 - Minimum Wage Fixing Convention, 1970 (No. 131) (International Labour Organization, 1970), sec. 3 <http://www.ilo.org/dyn/normlex/en/f?p=normlexpub:12100:0::no::p12100_ilo_code:c131> [accessed 28 November 2017]. 6
conduct a review of the national minimum wage contemplated in item 2(a) and (b) of Schedule 1 (i) in accordance with the process contemplated in section 6; and (ii) taking into account the goals contemplated in section 7(a) and the factors listed in section 7(b), in order to make recommendations to the Minister on the adjustment of the national minimum wage contemplated in item 2(a) and (b) of Schedule 1, which recommendations must, subject to the findings of the review contemplated in this paragraph, reflect an adjustment of items 2(a) and (b) to meet the level of that is equivalent to the national minimum wage contemplated in item 1 of Schedule 1, or as close to that amount as the Commission s findings allow. Add a similar provision for the EPWP level to reach the NMW within five years. Calculation of the Wage (Section 5) Add to 5(1) excluding employees contributions towards medical aid and pension funds Annual review (Section 6) Add to Section 6: (7) The Commission must review sectoral determinations in three- yearly cycles and make recommendations regarding amendments to sectoral determinations to the Minister in terms of sections 51 58 of the Basic Conditions of Employment Act. Adjustments to the title of this section and to the wording in Section 7 may need to be made to accommodate the above. Amend 6(2) as this is too cumbersome: The review report to the Minister must reflect any alternative views, including those of the public, in respect of any recommendations made in terms of subsection (1). Add dates so that the increase to the NMW comes into effect on 1 January (Section 6(1)), the review is submitted to the Minister by 1 September of the previous year (Section 6(3)), the Minister must, if necessary, return to the report to the Commission by 1 October (Section 6(4)), and the Minister publish the new level by 1 November (Section 6(5)). Conduct of annual review (Section 7) Between 7(a) and 7(b) an additional clause is added so that ensure (i) that the real value of the national minimum wage is not reduced through a minimum mandatory inflation- based increase (inflation as faced by the lowest two quintiles) subject to considerations noted in section 7(c) 7
OR Add to 7(a) promote (iv) the progressive increase in the real value of the national minimum wage subject to considerations noted in section 7(c) OR (iv) improvement in the real value of the national minimum wage OR (iv) the maintenance of the real value of the national minimum wage AND Amend 7(c) further consider (i) inflation as faced by the lowest two quintiles, the cost of living and the need to retain the real value of the national minimum wage (vii) the likely impact of the recommended adjustment on employment or the creation of employment the general impact on employment in the economy the existing wording is too complex and onerous. Appointment and termination of appointment of members of Commission (Section 10) Amend 10(1): The Minister, after in consultation with NEDLAC, appoints this gives Nedlac a stronger say. Functions of Commission (Section 11) Amend 11: (b) investigate and report annually to the Minister on the impact of the national minimum wage on the economy, collective bargaining, the alleviation of poverty and working poverty and the reduction in income differentials and make such information available to the public; (d) set medium- term targets for the level [and/or other dimensions of the target] of the national minimum wage to be reached within three years of the establishment of the Commission taking into account appropriate benchmarks and International Labour Organization (ILO) guidelines; (f) undertake reviews of existing sectoral determinations and research regarding the establishment of new sectoral determinations and advise the Minister on sectoral determinations upon revisions to existing sectoral determination and the implementation of new sectoral determinations; (i) investigate raising the minimum number of hours or work in Section 9A of the BCEA from four hours to five hours To be technically correct value should be real value throughout. Secretariat of Commission (Section 13) Add: 8
13(b) Subject to the laws governing the public service, the secretariat will be accountable directly to the Commission and the Commission, together with the Minister or a delegated authority, will jointly appoint and oversee the secretariat Funds of Commission (Section 14) Amend 14: The funds of the Commission consist of money defrayed from the budget vote of the Department appropriated by Parliament and which are subject to audit by the Auditor- General in terms of section 188 of the Constitution. Exemptions (Section 15) Amend 15(1): An employer or an employers organisation registered in terms of section 96 of the Labour Relations Act, or any other law, acting on behalf of a member, may, in the prescribed form and manner, apply for an exemption from paying the national minimum wage. Regulations (Section 16) Add a version of section 50(7) of the BCEA requiring union consent to exemptions and procedure to be followed where consent is not given, section 50(9) allowing for representation of affected parties, and section 50(10) insisting on notification of workers of the exemption. Add under clause 16(1)) that the Minister be instructed to provide regulations on (c) the collation and public dissemination of relevant statistics relating to exemptions applied for and granted. Short title and commencement (Section 17) Add a commencement date Transitional arrangements (Section 18) Add a transitional arrangement that the first review process must be completed by July 2019. Proposed amendments to the BCEA Amendment Bill Remove from Section 51: (3) If any sectoral determination at the date of the promulgation of the National Minimum Wage Act, 2018, prescribes wages that are higher than the national minimum wage, the wages in that sectoral determination and the remuneration and 9
associated benefits based on those wages must be increased proportionally to any adjustment of the national minimum wage in terms of the National Minimum Wage Act, 2018. Add to Section 52 (2) The Commission may on its own accord investigate conditions of employment in a sector towards making a recommendation to the Minister on the institution of a new sectoral determination or the amendment of an existing sectoral determination. Small amendments to the wording of other sections in the Section 52 may be needed to accommodate this. [END] Queries regarding this submission can be referred to: Dr Gilad Isaacs Coordinator, National Minimum Wage Research Initiative Director, CSID research programme University of the Witwatersrand gilad.isaacs@wits.ac.za 10