1 September 2010

Gross pay: the net effect...

What is the meaning of gross pay when calculating the annual earnings of an employee? This is the question answered by the Labour Appeal Court (LAC) in Monde Packaging (Pty) Ltd v Director-General: Labour (sic) and others (unreported judgment in case number JA49/08, delivered on 23 July 2010).

The employer refused to pay two employees at a rate of 1.5 for work done on Sundays in terms of Section 16 of the Basic Conditions of Employment Act 66 of 1995 (BCEA). It argued that these employees (both supervisors), earned in excess of the earnings threshold determined by the Minister of Labour (R115 572 per annum at the time of the dispute, currently R149 736 pa). Where employees earn in excess of the earnings threshold, they no longer benefit from certain provisions of the BCEA, including extra pay for work done on Sundays. The employer included overtime payments received by the employees in calculating their annual earnings. When the overtime payments were included, the employees' annual earnings exceeded the earnings threshold, whereas they earned below the threshold if overtime was not included in their annual earnings.

The employees complained to the Department of Labour that the employer did not pay them at the rate determined in Section 16 of the BCEA for work done on Sundays. A Labour Inspector tasked with investigating the complaint agreed with the employees, that overtime should not be included in the definition of gross pay used to calculate the employees' annual earnings. He issued a compliance order compelling the employer to pay the employees for Sunday time. The employer raised objection with the Director General of the Department of Labour who concurred with the Labour Inspector. The Labour Court similarly agreed that overtime should not be included in the calculation of earnings when the employer appealed to the Labour Court thereafter.

The LAC similarly agreed with the decision and stated the definition of 'earnings' in the BCEA should be interpreted purposively, to give effect to the objects and provisions of the BCEA in compliance with the Constitution and our international obligations. The ordinary, grammatical meaning of the definition of 'earnings' (gross pay before deductions) could include payments made for overtime. This, the LAC reasoned, could result in absurdity in that neither party would know in advance whether the employee would be entitled to receive extra payment for work done on a Sunday, as it cannot be determined in advance how much overtime the employee will work during the year. The LAC rejected the argument that the employees' earning for the previous year should be used as basis for determining whether the earnings would exceed the threshold in the current year. The LAC dismissed the appeal with costs.

The effect of the judgment is that employers should take care to ensure that they do not exclude the employees from the applicable provisions of Chapter 2 of the BCEA, based on a calculation of annual earnings which include overtime. Doing so may result in terse discussions with a Labour Inspector and a compliance order (which may be made an order of the Labour Court). The significant financial value of backdated claims for overtime and Sunday time can dramatically add to an employer's labour bill, unless the earnings of the employees are calculated in accordance with this judgment.

Johan Botes, Director

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