Notes Relating to the BCEA Legislation – Calculations

Notes Relating to the BCEA Legislation – Calculations

Legislation, Payroll / eTorQue

The changes to Section 35(5) of the Basic Conditions of Employment Act have caused much confusion in the labour market. The most amusing point of this so-called change is that nothing was really changed. The fact that a Government notice was published in mid-2003 seemed to awaken the private sector.

To adequately deal with these issues I feel that it is necessary to define the concepts from a labour perspective first.

‘Remuneration’ is defined as the payment in money or kind, or both in money and in kind, made or owing to any person in return for that person working for another person.

‘Wage’ means the amount of money paid or payable to an employee in respect of ordinary hours of work or, if they are shorter, the hours an employee ordinarily works in a day or week. Wage would therefore exclude payments in kind and payments done for work outside of ordinary hours.

The term ‘wage’ is used for the calculation of:

  • Overtime
  • Sick leave pay and family responsibility leave
  • Public holidays

An ‘allowance’ in labour terms is a payment to allow work to take place. Examples of such payments include:

  • Transport allowances
  • Tool allowances
  • Uniform allowances

The important point to note here is that these payments allow work to take place and bears no relation to work done. A transport or uniform allowance would still have to be paid even if work was not done.

In terms of labour terminology, a ‘benefit’ is something that an employee enjoys as a result of their association with their employer. The best examples of this would be the ability to purchase clothing rejected during the manufacture process whilst working for a clothing manufacturer and the ability for bank employees to receive low interest loans whilst working at a bank. The benefits acquired by the employee have no bearing on the employee’s ability to work or performance. When thinking of the term ‘benefit’ in terms of tax legislation one would think of contributions to pension or provident funds or a fringe benefit gained.

Fluctuating Payments
This point is particularly important when an employee earns payments that fluctuate each month. To accommodate this phenomenon the legislation requires that, for weekly paid employees, an average of the past 13 weeks earnings be used. For salaried employees an average of the past three months must be used.

If the employee has not been employed for the full 13 weeks prior to termination then a more representative period must be used. Seasonal workers or other workers whose income fluctuates according to market demand would be unfairly disadvantaged if the averaging process was performed over the less productive months. There would then obviously be an unfair advantage to the employer if the averaging were done in the higher earning months. In these cases I believe that the averaging should be done over a full year to ensure fairness, to include payments that are “regularly paid”.

The Act also makes mention of between ‘regular overtime’ and ‘occasional overtime’ and, in this instance, to include or exclude the overtime would need you to apply your mind.

Inclusions and Exclusions from ‘Remuneration’
There a number of remuneration items included and excluded in the Government notice.

Annual Payments Pro-rated
An employee still in employment will not be entitled to a pro-rated share of the bonus, as he/she will get the bonus when it is actually paid. If the employee’s employment is however terminated, they will be entitled to a pro-rated share thereof as they would not be in employment when it is paid out. This fact obviously assumes that the bonus is guaranteed.

Application of Legislation
This legislation was applicable from 1 July 2003. This means that only leave that accrues after this date would be subject to this legislation. The Payroll Authors Group has always been of the opinion that this legislation is merely a clarification and that nothing really changed.

Please contact me if you have any queries in regard to this notice: [email protected].