The importance of the Basic Conditions of Employment Act Earnings Threshold change

The importance of the Basic Conditions of Employment Act Earnings Threshold change

Business, Human Resources, Legislation

On 8 February 2021, the Minister of Employment and Labour issued a notice via Gazette No. 44137 that increases the BCEA (Basic Conditions of Employment Act) earnings threshold to R211 596,30 per annum with effect from 1 March 2021.

What does the BCEA Earnings Threshold apply to?

In a nutshell, the BCEA earnings threshold governs the sections of the BCEA that regulate the hours of work. The notice states:

“… all employees earning in excess of R211 596,30 (two hundred and eleven thousand, five hundred and ninety-six rand, thirty cents) per annum [must] be excluded from sections 9, 10, 11, 12, 14, 15, 16, 17(2) and 18(3) [of the BCEA]”.

This means that employees who earn more than the BCEA earnings threshold are excluded from sections of the BCEA and are therefore not entitled to the automatic protection and rights provided by the following sections:

  • Section 9 (Ordinary hours of work)
  • Section 10 (Overtime)
  • Section 11 (Compressed working week)
  • Section 12 (Averaging of hours of work)
  • Section 14 (Meal intervals)
  • Section 15 (Daily and weekly rest period)
  • Section 16 (Pay for work on Sundays)
  • Section 17(2) (Night work)
  • Section 18(3) (Public holidays not ordinarily worked)

It is only employees that earn below the BCEA threshold that enjoy the protection of these sections of the BCEA, and for example, are entitled to overtime pay at a rate of 1.5 times the normal hourly wage rate.

Employees that earn above the threshold are precluded from these automatic protections (e.g. they are not automatically entitled to overtime).  These provisions of the BCEA must then be provided for in the employment contract.

What is ‘BCEA Earnings’?

The notice defines ‘Earnings’ to be:

“… the regular annual remuneration before deductions, i.e. income tax, pension, medical and similar payments but excluding similar payments (contributions) made by the employer in respect of the employee: Provided that subsistence and transport allowances received, achievement awards and payments for overtime worked shall not be regarded as remuneration for the purpose of this notice.”

In the BCEA remuneration is defined as “… any payment in money or in kind, …made …in return for that person working for any other person.” BCEA remuneration is a complex subject and is not discussed in this article.

In short, excluded from BCEA remuneration are:

  • Allowances
  • Benefits that are not granted in return for ‘work done’ (in other words, benefits that are granted in return for ‘work done’ are BCEA remuneration).

“… before deductions…”

This part of the definition specifies what could be termed ‘gross’ remuneration i.e. remuneration before deductions, but the wording starting from “but excluding” is clumsily drafted and easily misinterpreted. It is clear that remuneration is not reduced by employment taxes (PAYE, SDL and UIF), and employee-paid contributions to medical schemes, retirement funds ,etc.

What is not clear is that the wording following “but excluding” appears to specify that remuneration must also be reduced by employer-paid contributions to medical schemes, retirement funds etc. This is not correct -employer-paid contributions to medical schemes, retirement funds ,etc. must be included in BCEA remuneration.

The Department of Employment and Labour has confirmed this by kindly providing the PAGSA with their interpretation that states that employer-paid contributions to medical schemes, retirement funds, and similar, are BCEA earnings and the value of the amount contributed must be included.

“… subsistence and transport allowances…”

As pointed out above, all allowances are excluded by definition from BCEA remuneration.  However, to reduce queries and prevent misunderstandings, the notice specifically excludes two commonly used allowances that in tax law have special tax rules, being the subsistence allowance and the travel allowance.

“… achievement awards…”

For the purpose of the notice, ‘achievement awards’ are not BCEA earnings, and include:

  • Bonuses
  • Commissions
  • Incentive payments, etc.

“… overtime …”

As stated above, only employees earning below the threshold are subject to the provisions of BCEA section 10 that provides the overtime rules.

This means that if an employee works overtime and earns –

  • Below the threshold, then the overtime must be paid by the employer,
  • Above the threshold, then the overtime may be paid (the employer can choose whether or not to pay).

In the past, when calculating the value of an employee’s BCEA earnings, only ‘occasional’ overtime was excluded from BCEA earnings, a nonsensical requirement.  How does one decide which overtime hours are ‘regular’ and which are ‘occasional’? Overtime is an irregular (or occasional) payment by nature.

The PAGSA submitted comments on this impractical requirement for many years until finally the wording in the notice was changed to what we have now – all overtime payments are excluded from BCEA earnings.

So where else would a change to the BCEA Earnings Threshold have an impact?

The BCEA earnings threshold impacts on the LRA (Labour Relations Act) and the EEA (Employment Equity Act). These impacts are:

Labour Relations Act

Employees that earn above the earnings threshold:

Are not subject to the LRA provisions that deem casual workers and employees placed by labour brokers who are not performing a temporary service, to be employees of the client.

Fall outside the scope of the LRA provisions relating to fixed-term employees who are deemed to be employed indefinitely after three months (in the absence of justifiable reasons for fixing the term of the contract).

Employment Equity Act

An employee who earns above the earnings threshold and who has a dispute under Chapter II of the EEA (unfair discrimination) is not permitted to refer the dispute to the CCMA for arbitration (unless the dispute relates to alleged unfair discrimination on the grounds of sexual harassment, or the parties agree to arbitration) and is obliged to refer the dispute to the Labour Court for adjudication.

Should you require any assistance with the interpretation of this legislation or its impact on your business please do not hesitate to contact our HR Team.