Minimum Wages in South Africa
Who are Minimum Wages directed at?
The Basic Conditions of Employment Act (BCEA) permits the Minister of Labour to set minimum terms and conditions of employment, including Minimum Wages. In South Africa, the Minimum Wage is directed at those who are often most vulnerable in the workplace. Vulnerable sectors are those with no unions or very little union activity and where wages tend to be low.
These sectors are:
• Domestic work sector
• Contract cleaning
• Private security sector
• Wholesale and retail
• Farm worker sector
• Forestry sector
• Taxi sector
• Children in the performance of advertising, artistic and cultural activities
Are there different Minimum Wage rates?
Yes. Minimum Wage rates may differ across geographical areas - for example, if one works in a city or rural environment. They may also differ in terms of pay periods (daily, monthly or yearly). Job function, years of experience and working hours are also factors.
When are Minimum Wages reviewed?
In South Africa, Minimum Wages are usually set for a year. The Minister of Labour has the power to review and increase minimum wages. This happens annually and is often linked to the consumer price index (CPI). However, this only applies to minimum wages and not actual wages. Parties are still at liberty to negotiate for better increases, using the minimum as a floor.
How do economics affect Minimum Wages and increases?
Wage increases do not happen in isolation. The South African economy is one of the factors that has an influence on increases. To understand the influence, you have to know the different economic indicators.
All indicators are accessible from the South African Reserve Bank. The first indicator to take note of is the inflation rate.
What is Inflation?
Inflation is a rise in prices caused by an increase in money supply or demand. The South African Reserve Bank uses the Consumer Prices (CPI) and Consumer Price Index (CPIX) to determine the current inflation rate.
Consumer Prices is based on the cost of a basket of necessities consumers are likely to buy per month.
Consumer Prices Index is the CPI excluding interest rates on mortgage bonds.
How Idoes inflation influence pay demands?
When negotiating for salary increases, wage demands are linked to inflation. Therefore the rate of inflation is putting downward pressure on wage settlements. Employers look to benchmark increases against the current low levels of inflation and expected inflation. Also, the Reserve Bank wants wage agreements to be forward-looking or to reflect the rate of inflation that is expected to prevail for the duration of the agreement.
Low Inflation Rate, Low Pay Increase
After living with a high inflation rate for more than two decades, South Africans will have to start getting used to living with a low inflation rate and lower salary increases. For example, with a lower inflation rate (3,9%), this means that workers would have to settle at 3% or less.
Low Interest Rates
As inflation reduces, so too will interest rates. Important interest rates to take note of are the Repo rate and the Prime rate.
- Repo rate or repurchase rate: The rate at which the private (sector) banks borrow rands from the SA Reserve Bank.
- Prime overdraft rate (predominant rate):The benchmark rate at which private banks lend out to the public.Read more