Government, labour, business and civil society in South Africa have seemingly dropped a plan by an advisory panel to grant firms with fewer than 10 employees an extra year in which to adopt a planned national minimum wage.
The agreement – signed earlier this month between Nedlac social partners and overseen by Deputy President Cyril Ramaphosa – says only that no business will be excluded from the national minimum wage (targeted at R3,500 a month, to begin May 1 next year).
This contrasts a recommendation by an advisory panel in its November report that all firms be given one year to bring wages in line with the minimum wage and that firms that employ 10 or fewer employees be given two years in all in which to do so (see this post).
The agreement instead calls for those businesses that cannot afford the minimum wage to be able to apply for an exemption of up to 12 months. It calls for firms to be able to lodge applications before the implementation date, to provide them with sufficient time to put in their exemption applications. A 30-day turn-around time on exemptions is envisaged.
While these details are not been set in stone, as legislation to effect the national minimum wage will now need to be introduced and debated in Parliament, it does a lack of foresight on the effect the minimum wage will have on small businesses.
Provide productivity support
In Malaysia in the first few years after the country implemented a minimum wage in 2013 firms employing five or fewer employees were initially given six months in which to meet the national minimum wage. SMEs and any other businesses also had an opportunity to apply for a further deferment from paying the national minimum wage
In addition to raise the productivity in small firms the government introduced four measures to assist small firms (outlined by the government's small business agency SME Corp here). These are:
Such measures implemented by South Africa might also help small firms. It is promising therefore that The Nedlac agreement notes that the government will explore ways in which exemptions could provide access to tax incentives.
While a number of countries (Nigeria, Morocco, the US and the Philippines) exempt micro firms from the national minimum wage, South Africa's advisory panel is not in favour of blanket exemptions for such firms.
Labour federation Cosatu’s strategies co-ordinator Neil Coleman (pictured above) said in a Daily Maverick opinion piece this week that proposals to exclude small businesses have been rejected, “based on cogent arguments” from the National Minimum Wage panel on the South Africa reality, as well as consideration of the international experience.
Wits University researcher Elena Konopelko argues in a policy paper published last year that such exclusions carry substantial risks.
“In cases where business exemptions are based on the number of employees, some companies employ workers illegally or classify permanent employees as volunteers to remain below the threshold and therefore avoid paying the national minimum wage.”
“In cases of exemptions being based on turnover, some companies start illegal accounting schemes to hide their real turnover. Labelling staff as volunteers or interns and paying them below the national minimum wage has also been documented in the UK.”
She says in addition, some sectors of the SA economy (such as the textile sector) consist predominantly of small firms and introducing a blanket exclusion would not provide a “decent wage floor” for workers, which could undermine the purpose of a minimum wage.
Still up for debate
If no exemptions are forthcoming, the government - under the Department of Small Business Development - in partnership with the private sector needs to put in place measures to boost the productivity of small businesses.
Without much better help from the government, coupled with perhaps tax rebates or incentives, the small business sector could see significant job losses.
Timm writes on small business. Click here to download the National Minimum Wage advisory committee report. Follow Small Business Insight on Twitter at @Smallbinsight.
Stephen Timm is a