South Africa

Q&A: Between the lines of a national minimum wage with Neil Coleman

By Greg Nicolson 20 March 2018

Oral hearings are under way in Parliament on some of the most important labour legislation in South Africa in the last 20 years, the National Minimum Wage Bill and the Basic Conditions of Employment Amendment Bill. Neil Coleman is co-director of the newly-established Institute for Economic Justice and was labour's lead negotiator between 2015 and 2017 at Nedlac on a national minimum wage. He takes us through the key points. By GREG NICOLSON.

What was your vision for a national minimum wage (NMW) in relation to a national wage policy, collective bargaining, and enhanced social protection? Have you achieved it?

Fundamentally, the NMW was intended to be part of a new national wage policy, which aims to reconfigure the wage structure and overcome the apartheid cheap labour legacy, which still characterises the reality facing the vast majority of SA workers.

This new wage policy should be seen as part of a broader socio-economic transformation agenda. By enabling working people to achieve a decent standard of living, it should both stimulate economic activity and help to drive domestic demand in the economy, which can be harnessed to support the mass production of locally produced goods.

At the same time, this transformation, by eliminating ultra-exploitative employment practices, can promote greater investment in people, including their training and skilling, help to promote a higher productivity economy, and eliminate old baaskap employment practices in the workplace.

The wage policy must aim to eliminate working poverty, in which workers work full-time (and often long hours of overtime) yet they and their families live in poverty, unable to afford basic necessities such as adequate food, shelter, health care, clothing, education. This is particularly true of black and women workers, 59% and 58% of whom, respectively, earn wages below the working poverty line.

The NMW is one, important element of a package to raise the incomes of working people. Because of the reality of high unemployment, and the fact that the unemployed rely on low-paid work, the NMW has to be supplemented by social protection measures, in particular to introduce income support for the unemployed.

When the labour movement proposed the introduction of a NMW for South Africa, it asserted that the NMW must be part of a package which promotes decent work and a living wage, promotes collective bargaining in all sectors of the economy, and establishes comprehensive social protection which, combined with the NMW, and the reduction in the cost of key public services, would significantly raise the income of poor households.

There are some real concerns in this regard that, while the NMW constitutes an important step forward, the Bills do not advance these goals in some respects. This is what is being contested in Parliament this week.

The legislation proposes NMW of R20 per hour. How do you respond to criticism that this is far too low and was this a failure on your behalf?

Like many issues, this depends on which side of the mountain you stand on, and because of the understandable strength of peoples’ feelings on the matter, some issues are getting lost as emotions rise. What you need to ask yourself is how the proposed NMW relates to: one, the power dynamics characterising the negotiations; two, the current situation in the labour market; and three, the basic needs which poor workers and their families have.

The level of the national minimum wage in 2018 will be R20/hour, R3,464 a month for 40 hours per week, or R3,897 a month for a 45-hour week. That is low, when measured against any acceptable standard. However we have to look at what labour was up against. From the beginning business negotiators made it clear that they would do everything in their power to block a NMW, and if that wasn’t possible, they would make it so weak, as to render it useless. At stake was the very existence of the cheap labour system in South Africa.

After two difficult years of negotiations, in December 2016, business negotiators were proposing a NMW of around R2,000 per month or about R11.50 per hour. So from that perspective the agreement on R20 per hour was an advance, even though labour had demanded a NMW of R4,500 per month or R26 per hour in 2016. The research produced, in particular by the Wits NMW Research Initiative, drawing on local and international evidence, was important in advancing the case that a meaningful improvement in minimum wages could be achieved without causing large-scale employment loss.

There is a saying in the labour movement: you can’t win in the boardroom what you haven’t won in the streets, meaning that negotiations is about power. There is no doubt that if there had been greater social mobilisation, we could have achieved a better level in the negotiations. But this remains an ongoing possibility, as contestation continues over the future NMW level.

The Wits NMW Research Initiative (NMW RI) estimates that when calculated in 2018 prices nearly 4.3 million low-wage workers who currently earn below R20 per hour, could have their wages raised when the NMW comes into effect. This is the shocking reality: that so many South African workers in 2018, are still earning such exploitative wages. Nonetheless there are few countries where the NMW has benefited such a high proportion of workers, and South Africa will be a leader in that regard.

If you consider the basic needs of workers and their families, it is clear that the NMW level is very low, and will need to be substantially improved. Studies by Saldru, UCT, showed that a household of four in 2016 would have needed at least R5,544 to achieve the minimum living level (i.e to afford the absolute basics), or over R6,000 in 2018 values.

The labour movement and its allies will have to mobilise to bring the NMW closer to a decent minimum wage – what we called a ‘meaningful’ NMW in the negotiations. While internationally it is recognised that only organised workers can achieve a living wage through their unions, a NMW assists workers in fighting for that living wage by creating a basic wage floor, to prevent a race to the bottom by the most exploitative employers.

It is also important to briefly mention that one of the major issues that was contested in the negotiations, and that we are addressing in Parliament, is the danger of measuring the NMW as an hourly wage. Inadequate protections exist in the Bills to prevent excessive reduction of working hours by employers, although there is a provision which prohibits employers from reducing existing wages, conditions or hours, after the introduction of a NMW, but the concern in particular is enforcement of this provision, and the need for mechanisms to deter excessive reduction in working hours.

If the Bills were agreed to at Nedlac, why are you and labour raising a variety of concerns in Parliament? Were the views of unions not adequately considered?

It is important to record the process leading up to the tabling of the NMW and BCEA Amendment Bills in Parliament, which primarily deal with the introduction of a National Minimum Wage (NMW) in South Africa.

There have broadly been four phases in the negotiations since 2015, which largely took place in the Wage Inequality Task Team at Nedlac. From 2015-2016 there were extensive discussions on the architecture of a NMW that led to a de facto deadlock due to contestation over the evidence which had been produced on an appropriate level for a NMW. That was broken by then Deputy President Cyril Ramaphosa’s appointment of a NWM Expert Panel.

The NMW Expert Panel Report was released in late 2016, and recommended a NMW of R20 per hour, as well as number of other recommendations relating to the architecture and implementation of a NMW.

From late 2016 to early 2017, the Nedlac parties considered the recommendations of the panel, and agreed to accept the recommendation for a NMW of R20 per hour, or R3,500 for a 40-hour week. The parties also reached agreement on a number of other issues leading to an important agreement in February 2017.

Draft Bills were tabled by the department of labour in Nedlac in May 2017. Three critical points are important to note: firstly, these Bills didn’t take forward key elements of the February agreement (eg on annual increases, the medium term target etc.). Secondly totally new elements were introduced by the Bills (such as the abolition of sectoral determinations) which had not been previously discussed and were not part of the February agreement. And thirdly, the Bills were not subjected to meaningful engagement, and discussions did not lead to significant changes. Parties were not part of the legal drafting team, although it had been agreed in principle that parties could have representation.

Under “pressure of time”, parties were then forced to agree that the Bills, as well as parties’ disagreements with them, would be referred to Parliament, and that parties would pursue their disagreements there.

We must record huge disappointment at the role played by negotiators leading the government delegation. While we had expected intransigence and delaying tactics from business, and we were not disappointed in that respect, the refusal on the part of government negotiators to engage in good faith is extremely concerning. The manner in which this matter was handled constituted serious undermining of Nedlac as the premier institution of social dialogue.

Labour proposed a medium-term target for increases in the NMW. What was the intention and how will this work?

Labour’s approach in the negotiations was that if the NMW starts from a relatively low level, when compared to the basic subsistence needs of workers, then the NMW package must include a target which will entail progressively increasing the value of the NMW over the medium term.

The provision for a medium-term target in the February 2017 agreement brokered by the deputy president was an important step in this direction. It was agreed that the NMW Commission must establish a medium-term target for the NMW, based on agreed benchmarks, including relevant International Labour Organization standards. Benchmarks which had been discussed include the minimum living level; typical international ratios between the NMW and average wage; and the average minimum in collective agreements.

However the NMW Bill fails to take forward this commitment in any meaningful way, and does not require the medium-term target to be reached in specified time frames, nor does it guide the Commission as to what benchmarks should be used in establishing the target. This negates the intention of the target, and we will be pushing for Parliament to correct this through amendments to the NMW Bill.

Specifically, it is important that the Commission within its first year of operation stipulate the level which the national minimum wage must achieve within 3-5 years of the Commission’s establishment.

Who will the NMW apply to and will casual workers and labour brokers be covered?

In the negotiations it was agreed that all workers would be covered by the NMW, regardless of their employment status. Therefore a broad definition of “workers” would be used which would include “independent contractors”, those that perform task-based work, piecework, home-based work, sub-contracting and contract work. This application of the NMW would therefore go beyond the narrow definition of ‘employee’ contained in labour legislation.

Despite this agreement, the final version of the Bills published by the Department of Labour contained the narrow definition of “employee”, suggesting that these categories of workers mentioned above would be excluded from the NMW. The DOL has subsequently issued a statement saying that the exclusion of the broader definition of “worker” was a mistake. We therefore expect this to be corrected in the parliamentary process.

Why did you agree to exclude farm, domestic and EPWP workers from the NMW? Was exclusion of other sectors considered?

It became clear early in the negotiations that if farm and domestic workers were included at the full value of the NMW from the start, then the NMW would be pitched at an extremely low level. This is both because of the extremely low level of wages in those sectors, and the very high proportion of domestic and farm workers earning at or near the sectoral determination minima set in their sectors. This was soon borne out when employers pushed for the NMW to be set at the minimum for domestic workers. If they had succeeded in forcing this through, the introduction of the NMW would have had no impact on the labour market.

Labour’s approach was to rather push for a meaningful NMW, by which we meant a NMW which was a significant improvement on the minimum wages applying to the majority of low paid workers. We were supported in this by the deputy president. We therefore argued that if a meaningful NMW was introduced, despite it being significantly higher than the minimum for farm and domestic workers, the impact of this change could be managed by initially incorporating them as a tier of the NMW, and then phasing them into the full value of the NMW. The alternative was for them to continue to be covered separately from the NMW by sectoral determinations, something which we rejected.

This proposal for NMW tiers is ultimately what was agreed. The farm workers wage tier is set at a minimum of 90% of the NMW (R18 p/h), and domestics at 75% (R15 p/h), with the agreement that they will be phased into 100% of the NMW over two years. Far from being an exclusion from the NMW, this actually constitutes an important advance for farm and domestic workers.

Firstly because they will be incorporated into 100% of the NMW. Secondly because their effective minimum wage in 2018, will be significantly higher than if they had continued to be covered by Sectoral Determinations. Nevertheless, we are pushing for greater clarity in the Bills on the transitional arrangements to ensure incorporation of farm and domestic workers into the full NMW.

Labour had pushed for the same principle to be applied to EPWP workers, namely that they be incorporated as a tier of the NMW, and progressively incorporated into the full NMW over time. Leading government officials had conceded that this was viable. However a significant improvement in EPWP worker wages was rejected by the government delegation, and a pathetically low R11 per hour (which is not even an inflation-based increase on the current minimum sectoral determinations for EPWPs which is R85 per day) was forced through in the dying days of the negotiations, when government officials effectively refused a meaningful engagement on this matter.

In relation to other exclusions, business had over time wanted numerous exclusions from the NMW including youth, small business, and other categories. But we managed to win the argument, based on the International Labour Organisation standards, that the NMW should be as comprehensive as possible, and minimise exclusions.

If anyone can apply for exemptions, won’t this render the NMW ineffective?

As far as employers applying for individual exemptions from the NMW, we wanted to build on the existing system of exemptions used by the department, which provides that employers have to submit financial statements to demonstrate a temporary inability to pay the NMW, that they would still have to pay a prescribed percentage of the NMW (eg 90%), that the employer must consult with the union and the workers, and that the exemption would be temporary, ie for a year. These principles have been agreed. However some of the detail still needs to be resolved in the Bills and the regulations. If this is adequately captured, we should avoid a situation where workers rights under the NMW are denied by many thousands of employers being exempted.

However there is one provision which Labour was very unhappy with. Section 14(1) of the Bill provides that an employers’ organization may apply for an exemption on behalf of its members. It has always been clearly understood that the purpose of exemptions is for individual employers to show that there are exceptional circumstances requiring a temporary exemption. The notion of employers applying collectively for their members defeats this intention. Even if its done by the organisations separately for each employer, it is likely that this will produce a machine designed to undermine the NMW, just as the Confederation of Employers in SA became a facility for labour brokers to frustrate the labour legislation.

What deductions will be allowed from the NMW? Is there a limit on these?

The Bills allow for legal deductions from the NMW, such as worker contributions to UIF, medical schemes and pension funds. Labour wanted the legislation to specifically prohibit employer contributions being deducted from the NMW. Labour also proposed that, to avoid the NMW being decimated by deductions, there should be a cap prohibiting deductions being more than 25% of the gross wage. These matters still need to be resolved.

One anomaly of the Bills is that they prohibit deductions for food and accommodation. This may appear progressive, but is likely to have unintended consequences, including the withdrawal of food and accommodation. We proposed that provisions similar to those in the farm and domestic SDs should be retained to regulate this element.

Why did you agree to abolish the Employment Conditions Commission and phase out sectoral determinations for the most vulnerable workers?

The Bills propose to phase out sectoral determinations (SDs) in three years, replace them with bargaining councils (BCs), abolish the Employment Conditions Commission, and withhold powers from the NMW Commission to oversee the SDs.

None of this was part of the February 2017 agreement. The proposal was unilaterally introduced by the Department of Labour in the draft Bills, and was rejected by labour and community constituencies. The proposal raised a host of problems, which the Nedlac Committee of Principles (COP) attempted to address in the negotiations, but which were not addressed in the published Bills:

The CoP agreed that there needs to be a provision that ensures vulnerable workers continue to be protected if bargaining councils have not been established within the three years given for SDs to be phased out in those sectors. There is no provision in the Bills which require the setting up of the BCs within three years, nor a provision protecting vulnerable workers from May 2021.

Section 22 of the BCEA Bill only provides that sectoral determination wages and benefits are increased proportionally to adjustment of the NMW. It doesn’t say what happens after that, but the implications are that the SDs fall away. Thus vulnerable workers in those sectors earning above the NMW would lose their protections.

There is no role given to the NMW Commission in reviewing or adjusting SDs, and Chapters 8 and 9 of the BCEA currently dealing with SDs and the Employment Conditions Commission are repealed. This is important for a range of reasons, including that the SDs need to be dynamically adjusted and that the Commission should be able to holistically tackle conditions of vulnerable workers using both the NMW and SDs.

This is a critical issue which must be addressed, otherwise government will be ‘giving vulnerable workers the NMW with one hand’ and ‘taking the SD benefits away from them with the other’.

What is the role of the NMW Commission? How will it work, and will it have enough power?

The NMW Commission is a very important body which has been given the responsibility of overseeing implementation of the national minimum wage, progressively increasing it in line with a medium-term target, monitoring and researching its impact, and developing strategies to deal with issues of wage inequality.

The Commission has been given some of the functions of the Employment Conditions Commission (ECC), such as implementing Section 27 of the Employment Equity Act, which deals with reducing ‘disproportionate income differentials’; but has currently been denied a role in overseeing the sectoral determinations, a critical function currently performed by the ECC. This is a major problem.

If we look at the functioning of similar bodies internationally, such as the Low Pay Commission in the UK, it is critical that the NMW Commission is well resourced, capacitated to do credible research, has an adequate level of independence, and is not reduced to a mere advisory body.

Issues which remain highly contested in relation to the functions of the Commission include: the failure of the NMW Bill to take forward the February 2017 NMW agreement that the Commission will implement annual increases which at least compensate workers for inflation; the failure of the Bills to give the Commission the role of overseeing the implementation of Sectoral Determinations; the lack of a clear mandate to the Commission on implementing a medium-term target. While mandating the Commission to implement measures to address wage inequality, the NMW Bill fails to address the weaknesses in the current Section 27 wage inequality provision, which has never been enforced by the ECC or the Department. DM

Neil Coleman is on Twitter: @NeilColemanSA. IEJ’s submission to Parliament on the NMW and BCEA Bills, which elaborates on some of the arguments, can be downloaded here.

Photo: Neil Coleman (Supplied)

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