Exemption threshold of R172,000

It is understandable that some employers would rather not be bothered with having to comply with imposed statutory maximum hours of work and overtime and pay some employees an annual salary exceeding the current threshold of R149,736.   On Friday they will simply increase pay by about 15% to get it above the new annual threshold of R172,000 and ensure that any overtime pay is excluded.   But if employers are not prepared to do that what are they going to do as from Friday?

Attention was drawn to the increase in the threshold in an earlier post – see BCEA: s6(3) determination – annual earnings threshold increased to R172,000 from July 1, 2011 – ‘earnings’ will exclude all overtime payments and the comment contained therein being an article published recently Business Day.

If employers fail to increase normal remuneration above the new annual threshold of R172,000  it seems that they will have to recalculate remuneration because of the change in the formula required to calculate earnings.

As from Friday employers wishing to continue employing the currently exempt employees on the same basis, but paying them less than a total of R172,000, will no longer be exempt from the specified sections of the BCEA, including overtime.   Employers may have to split basic pay for normal hours worked (45 hours per week) and payment for overtime (10 hours maximum per week) if those employees expect to be paid for overtime (at the rate of time and a half).

Assuming an employee’s current annual remuneration is R149,750 (just above the current threshold) and it is not raised beyond the new threshold as from Friday, the employees will be able to contend that they are again protected by the BCEA.   Presumably the total remuneration could be regarded as being in respect of the  maximum permissible normal (45 hours per week) and overtime (10 hours per week) working hours.   Payment for the overtime worked would then have to be deducted from the calculation of earnings for the purpose of the threshold and would drop considerably.   Employers would be required to regard payment for any such overtime at the rate of “time and a half” until such time as the employee’s total annual remuneration, excluding overtime, again exceeds R172,000.

Perhaps the Department of Labour intends to force employers to create more jobs at the higher levels rather than pay for the extra overtime.

Since at least 1983 the Minister of Labour (formerly Manpower) has exempted individual employees from certain statutory protections provided by the Basic Conditions of Employment Acts (1983 and then 1997).   This discussion is confined to the protection regarding payment for working overtime and the ordinary hours of work.   Note that in 1997 the maximum number of ordinary hours of work per week were reduced from 46 to 45.

Section 2(3)(b) of the earlier 1983 BCEA allowed the Minister to exempt employees employed “in or in connection with a shop or an office” and whose annual rate of regular remuneration, excluding any allowance, was not less than the prescribed amount.

Below is a list of the prescribed Rand amounts per annum for the major centres in South Africa.

There has been a 12-fold increase over nearly 30 years.   However, the straight-line average “increase” during that period was 9.26% with the straight-line average inflation rate being about 9.4%.   That means that the threshold “increases” have almost kept pace with inflation.

Comparing this with the average straight-rate of pay for an artisan (boilermaker) during the same period the figure is about 11%.

It seems that from about 2002 artisans forfeited the protection afforded by the BCEA when their remuneration started to exceed the threshold amount fixed by the Minister.

  • 14,400 from July 1983
  • 18,600 from about June 1985
  • 24,000 from about April 1988
  • 31,800 from about 1990
  • 40,500 from May 1993
  • 89, 455 from December 1998
  • 115, 572 from April 2003/4
  • 149,736 from March 2008
  • 172,000 from July 2011.

During the period of prescribing the amounts there have been at least four major changes:

  • Originally the threshold only applied to shops and offices and now applies to all employees.
  • There are no longer three different specified areas.
  • Payment for overtime has been excluded from the calculation of earnings.
  • Formerly it was ‘not less than’ the threshold and now ‘in excess’ thereof.

As from July 1, 2011 the threshold applies to all individual employees and all payment for overtime must be excluded from the calculation of earnings.   Presumably some of the changes were introduced to avoid any arguments about unfair discrimination.

Until this Friday the threshold is (including overtime pay)

  • R149,736 pa;
  • R12,478 pm;
  • R48 per hour (based on a maximum of 45 ordinary hours per week).

From Friday the threshold increases by 15% (excluding overtime pay)

  • R172,000 pa;
  • R14,333 pm
  • R73.50 per hour (based on a maximum of 45 ordinary hours per week).

Assume an employee presently earns in excess of R149,736 pa and is thereby exempt from the specified overtime provisions and receives a monthly salary.   There is no actual pay for overtime because of the threshold exemption and because the employee can be required to work overtime as agreed without any statutory maximum.

As from Friday employers wishing to continue employing the currently exempt employees on the same basis, but paying them less than a total of R172,000, will have to split normal basic pay and overtime pay because those employees will no longer have to work overtime without being paid at the rate of time and a half.

It seems that as a result of the change in formula, with all overtime pay being excluded, that employees who are expected to work the agreed hours but above the permitted statutory maximums and who are earning anything between R149,736 and R172,000 could now demand to be paid for overtime.

One thought on “Exemption threshold of R172,000

  1. An extract from the BCEA is included here as senior managers are also excluded by definition from the protection of chapter 2.

    In terms of section 1 of the BCEA “senior managerial employee” means ‘an employee who has the authority to hire, discipline and dismiss employees and to represent the employer internally and externally’.

    This is not a satisfactory definition and must surely result in considerable confusion as to when an employee is excluded from the provisions of chapter 2.

    6. Application of this Chapter (Two – Regulation of working time).

    (1) This Chapter, except section 7, does not apply to—
    (a) senior managerial employees;
    (b) employees engaged as sales staff who travel to the premises of customers and who regulate their own hours of work;
    (c) employees who work less than 24 hours a month for an employer.

    (2) Sections 9, 10 (1), 14 (1), 15 (1), 17 (2) and 18 (1) do not apply to work which is required to be done without delay owing to circumstances for which the employer could not reasonably have been expected to make provision and which cannot be performed by employees during their ordinary hours of work.

    (3) The Minister must, on the advice of the Commission, make a determination that excludes the application of this Chapter or any provision of it to any category of employees earning in excess of an amount stated in that determination.

    (4) Before the Minister issues a notice in terms of subsection (3), the Minister must—
    (a) publish in the Gazette a draft of the proposed notice; and
    (b) invite interested persons to submit written representations on the proposed notice within a reasonable period.

    7. Regulation of working time.

    Every employer must regulate the working time of each employee—
    (a) in accordance with the provisions of any Act governing occupational health and safety;
    (b) with due regard to the health and safety of employees;
    (c) with due regard to the Code of Good Practice on the Regulation of Working Time3 issued under section 87 (1) (a); and
    (d) with due regard to the family responsibilities of employees.

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