Prepare for the new minimum wage

October 2017

I think that it would be fair to say when the announcement was made regarding the national minimum wage of R20 per hour or R3 500 for a 40-hour work week, we all had mixed feelings about this.

Most probably the majority business managers had immediately reacted with the comment – ‘We can’t afford it’. Employees, especially the lowered paid ones, most probably reacted with – ‘Yeah, it is about time’.

It was also announced that the minimum wage will be implemented from 1 May 2018, although there are already rumours that it might only be implemented during 2019. The fact is it will be implemented some time and we should be ready for it. You will gather from the heading of the article the purpose is to discuss how to be ready and not to discuss the merits or advantages or disadvantages of applying a national minimum wage.

If you are a business manager (farmer), especially of a smaller farm and you reacted with the statement that you cannot afford it – how do you know you cannot afford it?

To be able to prepare for the new minimum wage one must know what the effect on your business will be. A good indication of the affect will be to recalculate the labour costs in your budget for 2017. We trust you are using a budget system, we have propagated it many a time in our series of articles regarding farming management. Note the effect on your projected profit – should you still be making a profit, you will have to decide whether you will be satisfied with the profit or not. Should the projected profit however be a loss, you know you will have to do something about it.

Unfortunately, the first that comes to mind when higher costs need to be addressed, is to retrench some employees. In South Africa, the Labour Laws allows for employees to be retrenched due to operational reasons. However, it is somewhat of a complicated process which many a time ends in the Labour Courts. Thus, should this be the way you want to go, you will have to prepare yourself thoroughly to apply all due processes.

However, before you decide to retrench employees you will have to re-evaluate all the tasks and jobs on your farm – are all necessary? Can all the tasks and jobs perhaps not be done by less people? Is it not possible to use other and/or more advanced tools, equipment, machinery?

In preparing to cope with higher labour costs you should re-visit your business in view of possibly restructuring it and farm with different/ new enterprises which are less labour intensive. Or, consider replacing labour with machinery if and where possible.

A softer approach would be to consider moving to a 40-hour week instead of a 45-hour week to reduce labour costs. However, less time is then available for all the work to be done and therefore you will have to evaluate the productivity of your workforce. But, productivity is a major problem in South Africa. Worldwide statistics indicate that South Africa is ranked between the countries with a low productivity. This low productivity causes labour to be expensive in South Africa.

It is therefore imperative that attention must be paid to productivity. When considering productivity, there are two resources involved namely people (employees) and equipment (tools, machinery, etc.).

Address your human resources – do your employees have the necessary skills and expertise to do the job and are they properly trained? Even the employee cultivating a maize land using a hand hoe. Train your employees properly to increase productivity and therefore counter higher labour costs. Also, communicate with your employees on ideas to get a job done – they can come up with wonderful ideas.

What about the work ethics and attitude of your employees? Do some of them report late for work on a regular basis? Or what about the abuse of sick leave? These are signs of employees with a negative attitude towards their work which impacts negatively on productivity. Keep in mind that well trained, skilful employees normally portray a positive attitude, maintain a high standard of work ethics and are more productive.

It is understandable that any increase in agriculture’s wage bill will affect both profitability and employment in the sector. To soften the blow of the higher wages, where farmers are in financial difficulties and cannot afford the higher wages, they still have access to Section 50 of the Basic Conditions of Employment Act. This grants exemption from complying with the minimum levels. Furthermore, the minimum wage will be phased in over a two-year period.

Thus, on the positive side. Use this opportunity, which this introduction of minimum wage forces you to do, to re-visit your business properly. Let’s be honest it is something farmers are hesitant to do. However, use this opportunity to your own advantage.

Article submitted by Marius Greyling, Pula Imvula contributor. For more information, send an email to mariusg@mcgacc.co.za.

Publication: October 2017

Section: Pula/Imvula