CALCULATION OF REMUNERATION

A new schedule, published in terms of Section 35 of the Basic Conditions of Employment Act, has established a method of calculating:

• pay for annual leave;
• payment instead of notice; and
• severance pay.

Application of this schedule: 

This schedule will apply:

• When calculating leave pay (annual leave accrued from 1 July 2003);
• When calculating pay instead of notice;
• When calculating a retrenched employee’s severance pay.

Payments included for the calculation of Remuneration:

When calculating an employee’s pay for annual leave, payment instead of notice or severance pay, the following payments are to be included in the calculation of remuneration: 

• cash payments (any cash payments made to an employee);
• housing or accommodation (the value of a housing or accommodation allowance or subsidy received as a benefit in kind);
• car (the value of a car allowance, except to the extent that the car is provided to enable the employee to work);
• employer contributions (employer’s contributions to medical aid, pension, provident fund or similar scheme; to a funeral or death benefit scheme);
• payment in kind (any other payment in kind received by the employee).

In short, when calculating the employee’s remuneration, the cost-to-company of the employee must be used.

Payments NOT included for the calculation of remuneration

• Any cash payment or payment in kind provided to enable the employee to work (for example, an equipment, tool or similar allowance or the provision of transport or the payment of a transport allowance to enable the employee to travel to and from work);
• A relocation allowance;
• Gratuities (for example, tips received from customers) and gifts from the employer;
• Share incentive schemes;
• Discretionary payments not related to an employee’s hours of work or performance (for example, a discretionary profit-sharing scheme);
• An entertainment allowance;
• An education or schooling allowance;
• Allowance paid for property owned by the employee

A rider... :

A very important rider contained within this schedule reads as follows:  [If] the employee received the payment or enjoyed, or was entitled to enjoy the payment in kind during the relevant period then the abovementioned payments will NOT form part of the calculation of remuneration.

It is difficult to interpret this clause, but it is opinion of Bohlmann Attorneys (see details below)  that:

• if, by way of example, a vehicle or a house is already the personal property of the employee and he simply receives a car allowance or a housing allowance during his period of employment, then the value of this payment in kind should not be taken into consideration when determining the employees remuneration;
•  if the employer provides the employee with housing or a car during his period of employment and the assets remain the property of the employer, then the value of that allowance must be included for purposes of calculating the employees’ remuneration.

Payments of full contributions by the employer:

In circumstances where the employer pays the full contribution to a fund or scheme, such as a medical aid scheme or funeral scheme, the employee is not entitled to payment or the cash value of this payment in kind as part of remuneration.

Calculation for payments in kind:

 The value of the payments in kind must be determined as follows: 

• The value agreed to in the contract of employment or collective agreement, provided that the agreed value is not less than the cost to the employer of providing the payment in kind; or 
• The cost to the employer of providing the payment in kind.  

Effective date:

The schedule comes into operation with effect from 1 July 2003 and only applies to the minimum payments that an employer is required to make in terms of the Basic Conditions of Employment Act, 1997.

This article was prepared by Bohlmann Attorneys who provides a comprehensive range of professional services in the field of employment law and related fields. They seek to provide support to clients in achieving their Human Resource and Industrial Relations goals.  Heidi Bohlmann can be contacted on 083 395 0259 or 021-7889815.  

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