During the State of the Nation address in 2014, President Jacob Zuma urged the National Economic Development and Labour Council (NEDLAC) to explore issues such as wage inequality in the Country. Following this, South African policy makers recently presented a report to Deputy President Cyril Ramaphosa regarding recommendations on the implementation of a proposed national minimum wage.

An Advisory Panel (Panel), established in August 2016, consulted with NEDLAC, its social partners, experts from various areas of the labour market, and other interested parties.

As a result of various socio economic challenges, the Panel recently proposed a new minimum wage. The proposed starting amount suggested by the Panel is R3,440. It is important to note that this amount was calculated by setting the hourly wage at R20, which would make the weekly wage R800 (if the employee works for 40 hours a week). Furthermore, the month is calculated by using an amount of 4,3 weeks per month.

In explaining how the amount was decided on, the Panel explained that a lower minimum wage would have minimal or no impact on poverty and that a higher number may result in unemployment. In addition, the Panel decided that it was necessary to set a specific number, ie R20, rather than a range of a wage rate and this would avoid confusion as well as dispute on applicability. If this new minimum wage policy is implemented, South Africa joins many other developing and developed economies in the world which have successfully implemented a similar policy in their own jurisdictions.

The Panel has also been tasked with ensuring that proper institutional arrangements are proposed so that proper mechanisms are implemented in order to ensure compliance and enforcement of the minimum wage.

The intention of the Panel is to legislate the institutional arrangements and enforcement procedures by early 2017. Thereafter, there will be a two-year transitional period in order to fully implement the new minimum wage.

The proposed timeline will commence with an agreement between all parties on the initial national minimum wage amount, the legislation to regulate it, and the particular details of the of the minimum wage model by December 2016. This process will culminate in July 2019 with the implementation of the National Minimum Wage across South Africa, with fines being imposed for non-compliance.

The Panel considered that the implementation of the minimum wage may have dire consequences on the vulnerable sectors such as small businesses, youth employment, and vulnerable workers (such as farm workers and domestic workers), especially in light of the two-year transition period. To cater for this, the Panel argued that there are policies and legislation in place that regulate these sectors, and that the introduction of the proposed national minimum wage into these sectors will not have a negative impact if it is introduced over a longer period than the proposed two years. Employers in vulnerable sectors, who cannot meet the minimum wage, will be temporarily exempt from enforcement.

It is proposed that the national minimum wage will be reviewed and adjusted once a year from 2020 by a new body to be established. When making such a determination in the future, significant emphasis will be placed on documented research which identifies the needs of employers, employees and the impact on the economy.

Whilst the implementation of the national minimum wage may prove to be a great victory for employees, it may however prove to be a challenge for employers and their continued financial viability. It is therefore advisable for all employers to start identifying and forecasting the impact that an imposed minimum wage will have on its business and to consider measures to implement in order to avoid any adverse consequences on business as well as continued employment.