Fair Pay, Fair Play: Results-based Remuneration and the National Minimum Wage
On 4 February 2025, the Minister of Employment and Labour, Nomakhosazana Meth, announced an adjustment to the national minimum wage (NMW) of 4.4%. This increase will take effect as of the 1st of March 2025, which means that employers must now pay employees at least R28.79 per normal hour of work, and R15.83 per hour of work for employees under an expanded public works programme.
Implications for Results-based Remuneration
Complying with the National Minimum Wage Act (NMWA) is quite simple when employees are paid at an hourly rate or have a fixed income. But the question begs, “what about results- and commission-based pay structures?”
Commission-based pay structures have become increasingly attractive for employees in the modern working environment who are looking to supplement their normal / basic income. Employers have also gladly adopted this structure as it allows them the ability to link remuneration directly to measurable outputs. However, there is a down-side to this type of structure where employees’ income is exclusively based on commission and measurable outputs. Employers have used this as a clever way to get out of remunerating employees fairly. The logic is simple – no results, no pay. However, employers must be careful as the Labour Court has ruled that this is not allowed.
Legal Obligations and Compliance
In terms of the Labour Relations Act, 66 of 1995, an employee is defined as –
- any person, excluding an independent contractor, who works for another person or the State and who receives, or is entitled to receive, any remuneration; and
- any other person who in any manner assists in carrying on or conducting the business of an employer.
Based on this definition, commission-based employees will be considered employees regardless of the fact that their remuneration is exclusively based on performance or output. These employees therefore have the same rights as salaried employees / employees being remunerated a fixed monthly income. Resultantly, as of 2018, commission-based employees are legally entitled to their commission as stipulated by their commission agreement with their employer, which – together with their basic salary – should amount to at least the NMW as stipulated by the NMWA. The key lies in the commission agreement between the employer and the employee; however, the employee should always receive at least the NMW even if they do not earn any commission for that month. For example, a company in the sales industry can come to an agreement with an employee that stipulates that commission is only paid out after the point where an employee has generated sales income that amounts to the NMW. In this instance, the employee should still receive the NMW and only receive commission from any sales amounts in addition to their monthly NMW.
In Atlas Finance (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration and Others, the Labour Court had to determine whether commission-based employees who work discernible hours and received a base salary were subject to the NMWA.
The court ruled that commission-based employees must be paid at least the national minimum wage, on average, over the duration of their “pay reference period” (the specific time frame over which an employee’s normal wage or salary is calculated, e.g., weekly, monthly, etc.) regardless of their commission-structure agreement with their employers. This means that if an employee’s commission over their pay reference period amounts to less than the NMW based on their hours worked, their employer must make up the sum to amount to at least the NMW (in total). Section 5(2) of the NMWA stipulates that any employee who is remunerated based on factors other than their number of hours worked, must be paid at least the minimum wage for their ordinary hours of work permitted in terms of the Basic Conditions of Employment Act (BCEA) 75 of 1997. This is also subject to Section 9A of the BCEA that determines that an employee must be remunerated for a minimum of four hours even if they work less hours on a particular day.
The most important takeaway for employers and employees is that commission-based employees must earn at least the minimum wage during their payment reference period regardless of their commission-structure agreement. For example, if a commission-based employee works an 8-hour shift for five days a week, they must be paid at least R1,151.60 for that week (R28.79 x 8 hours x 5 days), regardless of their measurable outcomes.
Even though commission-based pay structures are intended to offer the employer a certain degree of flexibility, the Labour Court’s ruling once again highlights the importance of ensuring compliance with the NMWA in relation to fair remuneration. Failing to adhere to the NMWA may result in fines from the Department of Employment and Labour which can have severe cost implications for employers.
As the South African regulatory landscape continues to change, let us assist you to review your remuneration structures and ensure that you align with the updated minimum wage requirements.
Article written by Jané Theron
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