The National Minimum Wage Act (NMWA) has been a significant milestone in the pursuit of social and economic justice for vulnerable workers in South Africa. It aims to protect low-wage workers from exploitation and improve their earnings by setting minimum wage standards. One of the critical questions arising from this Act is how various components of remuneration are considered when calculating minimum wages. A recent case involving Quantum Foods raised essential questions on whether contractual bonuses and provident fund contributions should be factored into minimum wage calculations.

In the matter of Quantum Foods (Pty) Ltd v Commissioner H Jacobs N.O. and Others (JA85/2022) [2023] ZALAC 27,  the employer sought to align its employees' wages with the provisions of the NMWA by restructuring their payslips to include a contractual bonus and provident fund contributions. These bonuses were guaranteed and paid either annually or monthly. However, the Trade Union representing the employees challenged this practice, arguing that these payments should not be included in minimum wage calculations.

The dispute was subsequently referred to the Commission for Conciliation, Mediation, and Arbitration (CCMA). The Commissioner was tasked with determining whether the employer complied with the Act by including the contractual bonus and provident fund contributions in the minimum wage calculations. The Commissioner, relying on the definition of a “bonus”, concluded that it is an additional payment and not part of the normal hourly wage and, thus, should not be considered in compliance with the Act. Regarding the provident fund contributions, it was found that the employer did not make contributions to the provident fund, although it was later revealed to be a factual error.

The employer appealed the arbitration award at the Labour Court (LC). The LC affirmed the Commissioner's decision, emphasising that the contractual bonus should not be considered when calculating minimum wage. The LC also concluded that the phrase “despite any contract or law to the contrary” in the Act means that contractual entitlement to a bonus is irrelevant. The court did not need to rule on the provident fund contributions issue due to the factual error in the Commissioner's finding. The crux of the matter lies in the interpretation of Section 5(1) of the NMWA, which defines how minimum wages should be calculated. It excludes “gratuities, including bonuses, tips, or gifts” from the calculation. The central debate revolved around whether a contractual bonus could be considered a “gratuity.”

The Labour Appeal Court (LAC) ultimately ruled that the Act excludes only gratuitous bonuses, those given at the employer's discretion. As in the Quantum Foods case, a contractual bonus, which is an enforceable contractual obligation, should be included in the minimum wage calculation. Furthermore, provident fund contributions should also be factored in as they meet the Act's definition of “payable in money for ordinary hours of work.” The LAC's decision in this case provides clarity on the interpretation of the NMWA. It affirms that contractual bonuses and provident fund contributions can be included in minimum wage calculations, provided they meet the Act's requirements. This Judgment helps ensure that workers are not deprived of their rightful earnings and reinforces the Act's objective of safeguarding the rights of low-wage workers in South Africa whilst also rightfully protecting employers who are compliant with the NMWA in consideration of provident fund contributions and contractual bonuses.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Brandon Hartel
Consolidated Employers Organisation
Unit 18, Cambridge Office Park
Bauhinia Street
Highveld Technopark
Centurion
SOUTH AFRICA
Tel: 012880 0294
Fax: 086697 0584
URL: www.ceosa.org.za

© Mondaq Ltd, 2023 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source Business Briefing