In certain industries, such as hospitality, retail sector, estate agents and financial advisory, commission is an important component of the payment structure of these employees. In the calculation of the employee’s remuneration, on more than one occasion, the question arose if the commission forms part of the calculation to comply with the National Minimum Wage Act (NMWA). Section 1 of the Basic Conditions of Employment Act (BCEA) defines remuneration as “any payment of money or in kind.” On the other hand, wages are a component of remuneration paid to an employee in respect of ordinary hours of work, or if the hours are shorter, the hours an employee ordinarily works in a day or week.
When incorporating the definitions of wages and remuneration in the National Minimum Wage Act (NMWA), Section 5(1)(a)-(c) provides certain exclusions such as any transport, equipment, tool or accommodation allowance, gratuities including bonuses, tips, or gifts. Currently, there is no stipulation of which earing components should be included in the calculation of the minimum wage.
There are two questions arising when it comes to commission and compliance with the national minimum wage:
- Is commission a discretionary payment?
- Is the commission excluded from calculating the national minimum wage?
In the recent case of Atlas Finance (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration and Others  7 BLLR 647 (LC), the employees were sales consultants of the employer and earned a basic salary plus commission. The commission was calculated on a percentage of new business generated by the employee per month during a 40-hour week. The employee’s basic remuneration varied from R750.00 to R2000.00 per month. Combined with the basic remuneration, the employees earned commissions during normal working hours. The employees referred a dispute to the CCMA, claiming that the employer was not complying with the National Minimum Wage Act. A Commissioner found that the employer did not comply and ordered payment to the employees of over one million rands and imposed a proportional fine. The employer argued that the commission portion earned during normal working hours had to be included in the calculation of the national minimum wages and the employees earned more than the required amount in terms of the Act. The employer referred the matter to the Labour Court to review the arbitration ruling.
In answering the first question, the Court considered Section 5(1)(a)-(c) of the National Minimum Wage Act and found that commission is not part of the exclusions, which are discretionary payments. The Court further noted that the specification of “ordinary hours” is important because it excludes, for example, productivity or overtime. In South Africa, wages are calculated based on ordinary hours worked, which ensures that employees receive payment for overtime worked, when applicable. Because the employee’s earned the commission during their working hours, the commission will not be seen as a discretionary payment but form part of the employee’s wages.
In answer to the second question, the Court noted that there was no stipulation of which earing components are included in the national minimum wage calculation. The Court’s finding was that if the Legislator intended to exclude the commission from the national minimum wage calculation, the Legislator would have stipulated it specifically in the exclusions in Section 5 of the NMWA. Therefore, the commission cannot be excluded when calculating the national minimum wage.
It should be noted that in terms of Section 5(3) of the National Minimum Wage Act, the employer is obliged to at least pay their employees the national minimum wage. If a commission worker is not earning enough commission in a month, the employer should “top up” the employee’s salary to comply with the national minimum wage. It is also important that the agreement between the employer and the employee regarding the commission should be in writing.
If employers are uncertain of the correct way to calculate their employees’ national minimum wage, guidance can be requested from your nearest CEO’s office.
Article by: Christie de Villiers
Dispute Resolution Official – CEO Polokwane