Results-based remuneration: Do minimum wage rules apply if you're not paid by the hour?

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Minimum wage: A snapshot

The Minister of Employment and Labour has determined the adjustment to the national minimum wage (minimum wage) in accordance with the NMWA. The minimum wage now stands at R28.79 per ordinary hour worked and R15.83 per hour for workers employed under an expanded public works programme. Prior to this adjustment, the minimum wage was R27.58 per ordinary hour worked and R15.16 for workers in expanded public works programmes.

The NMWA, which came into effect in 2019, requires employers to pay the minimum wage to every worker except members of the South African National Defence Force, the National Intelligence Agency, and the South African Secret Service.

The minimum wage constitutes a term and condition of a worker’s contract unless a more favourable wage is agreed upon. Workers and employers cannot waive the payment of the minimum wage, as it takes precedence over any contrary provision in a contract, collective agreement, sectoral determination, or law, except a law amending the NMWA.

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Minimum wage for workers not paid by the hour

Determining whether an employer complies with the obligation to pay the minimum wage is straightforward when workers have fixed working hours or a fixed wage. The wage is calculated based on hours worked, with a minimum of four hours paid daily even if fewer hours are worked. The situation becomes more complex for commission-based workers.

Commission-based remuneration, common in sales and market networking industries, involves workers earning income through selling products or services on behalf of a business. This remuneration model is prevalent in cosmetic companies, and financial and insurance institutions.

Commission earners fall within the definition of "worker" in the NMWA and are thus entitled to be paid the minimum wage. However, challenges arise when determining compliance with the NMWA for remuneration not based on hours worked, such as output or sales targets.

Results-based remuneration structures are attractive for workers seeking to supplement income or work outside traditional working environments, such as caregivers or stay-at-home parents. Employers also favour such remuneration structures for flexible, independent tasks where pay is directly linked to measurable outputs.

What the Labour Court says

In Atlas Finance (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration and Others, the Labour Court had to determine the application of the NMWA to commission earners who worked discernible hours and received a basic salary.

The court held that commission workers, regardless of how their earnings are structured, must receive the minimum wage within their 'pay reference period' For example, a commission worker on a purely commission-based income, working an 8-hour shift, 5 days a week, must be paid at least R1151.60 per week (calculated as R28,79 x 8 hours x 5 days).

Section 5(2) of the NMWA stipulates that any worker paid on a basis other than the number of hours worked must still receive the minimum wage for the ordinary hours of work permitted in terms of the Basic Conditions of Employment Act 75 of 1997 (BCEA). This is subject to section 9A of the BCEA, which mandates that workers be paid for a minimum of four hours, even if they work less hours on a given day.

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This implies that if a worker earns based on sales volume but makes no sales in a day, they must still receive at least four hours’ worth of the minimum wage.

Where workers sell products or services for multiple employers and their working hours are neither monitored nor strictly stipulated in commission agreements, commission earners may be unable to prove that they worked for a specific employer during a particular period, except through recorded sales or specified outputs for that employer.

If no sales or outputs are recorded, employers may argue that they have no obligation to remunerate the worker in terms of the NMWA, given the results-based method of calculation governing the working arrangement.

No one-size-fits-all approach

Given that commission structures and working arrangements vary across industries, there is no one-size-fits-all approach for commission earners remunerated on a basis other than hours worked. Employers are nonetheless encouraged to review their remuneration structures to ensure compliance with the NMWA, particularly where no justifiable reason exists to depart from its objectives.

Non-compliance with the NMWA may have financial consequences for employers, including fines for failing to adhere to compliance orders issued by the Department of Employment and Labour.

Additionally, if workers successfully challenge an employer's failure to comply with the NMWA, the employer may be ordered to pay workers the minimum wage retrospectively.