In an arbitration award on 27 June 2024, the Commission for Conciliation, Mediation and Arbitration (“CCMA”) was faced with the issue of determining whether the employer’s policies were against the National Minimum Wage Act, 2018, by including loyalty bonuses and retirement funds in the employee’s wages.

Background

In the case of Mr Price t/a Sheet Street / Department of Employment and Labour - Gauteng [2024] 10 BALR 1082 (CCMA), Mr Price t/a Sheet Street at Dobsonville Mall Store (“the employer”) was issued with a compliance order by the Inspector of the Department of Labour for failure to comply with section 4(5) of the National Minimum Wages Act, 2018 (“the Act”), which places the obligation on employers to pay employees wages that are not less than the applicable national minimum wage. The employer referred a dispute to the CCMA claiming that it was in compliance with the Act.

The employer asserted during the arbitration that it was in compliance with the Act because it had a policy that guaranteed loyalty bonuses to all permanent employees without any conditions. The employer further argued that it contributed 7.5% of the employee’s pensionable salary towards a retirement fund.

The Department of Labour argued that the employer awarded loyalty bonuses to employees based on their performances and that was contrary to section 5(1) of the Act and the law laid down by the Labour Appeal Court in the case of Quantum Foods (Pty) Ltd v Commissioner H Jacobs (2024) 45 ILJ 71 (LAC).

Commissioner’s analysis

The Commissioner correctly noted that the Labour Appeal Court in Quantum stated that gratuitous bonuses granted by employers are excluded from employee’s wages as per section 5(1) of the Act. However, contractual bonuses are enforceable obligations included in the calculations of wages of employees. The court in Quantum further stated that retirement fund contributions are included in the employee’s wages if they form part of the Act’s definition of “payable in money for ordinary hours of work”.

Based on the law laid down by the court in Quantum, the Commissioner stated that since the employer’s policy only requires employees to be permanent employees to receive loyalty bonuses, these bonuses are enforceable contractual benefits and thus form part of the employee’s wages. With regards to the retirement fund contribution, the Commissioner followed the principle in Quantum by stating that the wording “payable” means “that which is required to be paid in money to the employee, which includes the payment to be made on his or her behalf”. The 7.5% of the employees’ pensionable salary paid to the retirement fund fulfills this criteria and forms part of wages.

In light of the above, the Commissioner found that the compliance order issued be set aside as the employer’s policy and calculations of the employee’s wages was in accordance with the Act.

Conclusion

The above case is a great outline of the principle set out in Quantum. When calculating the wages of the employees, bonuses that are granted as a form of gratitude (e.g performance-based bonuses) are different from contractual bonuses. The latter form part of the calculation of the employee’s wages, whereas a performance bonus is excluded from the employee’s wages. Furthermore, retirement funds paid on behalf of the employee as per the employment agreement, form part of the employee’s contractual wages.