Minimum wage warning for South African businesses

Minimum wage increases may be intended to protect workers, but they can often have negative consequences that harm the people they intend to protect.

This is according to the Empact Group’s managing director of Supercare, Johan Gerber, who said there are a number of challenges posed by recent minimum wage increases mandated by the South African government. 

South Africa’s minimum wage was increased from R25.42 per hour to R27.58 per hour in March of this year.

“While the intention behind these increases is to improve the livelihoods of minimum wage earners, the reality is that they often create a complex web of consequences, particularly in industries like contract cleaning,” Gerber said.

“The recent mandates by the South African government have significantly elevated labour compensation standards, yet they’ve unleashed a torrent of challenges for businesses already grappling with financial constraints.” 

He said that while the wage hikes are well-intentioned in their aim to uplift low-income workers, they have inadvertently plunged industries, particularly the contract cleaning sector, into a dire quandary.

“Despite noble intentions, these wage increases have catalysed a cascade of unintended consequences, from exacerbating financial strain on struggling businesses to perpetuating cycles of unemployment and poverty,” he warned.

“For small enterprises barely holding on, such mandates can prove catastrophic, leading to layoffs and closures, while larger corporations, pressured by shareholder demands, resort to cost-saving measures like job cuts.” 

“This conundrum of minimum wage versus a living wage underscores the complex interplay between economic policies and real-world ramifications, highlighting the urgent need for nuanced solutions in navigating this turbulent economic landscape.”

Gerber said the key to breaking the cycle of generational minimum wage workers lies in a commitment to reinvesting any savings generated from technological advancements into upskilling staff. 

He said businesses must embrace a fundamental shift in their approach, investing in training programs and educational initiatives tailored to the evolving demands of the industry. 

“This shift goes beyond short-term cost containment measures, instead focusing on long-term investment in human capital, which not only enhances the skill set and earning potential of the workforce but also fosters a culture of innovation and excellence, driving sustainable growth and prosperity for all stakeholders,” he said. 

“Through this holistic approach to workforce development, we can truly uplift minimum wage workers, break the cycle of poverty, and forge a brighter future for generations to come.”

Agri SA has also previously warned that the rapid national minimum wage increase is throttling South Africa’s agricultural sector growth. 

In 2023, the organisation said it would submit a report to Parliament demonstrating the negative impact of the national minimum wage on the growth and sustainability of the agricultural sector. 

“Unless the increases of the minimum wage in the agricultural sector are aligned with inflation, there is a real risk of the agricultural sector contracting with devastating effects for employment in the sector,” it said. 

The agricultural sector has proven remarkably resilient despite facing numerous crises – including the Covid-19 pandemic.

However, Agri SA warned that the pressure on the sector is beginning to show. The sector grew by 17.8% in 2020 but only 7.4% in 2021 and a marginal 0.9% in 2022. 

This slower pace of growth is reflected in the labour statistics recently released by Stats SA, which showed only a 0.8% quarter-on-quarter increase in employment in the agricultural sector. 

The organisation said the decline in the agricultural sector’s profitability is the result of rising input costs. Labour is the most significant of these costs, constituting 25% of all production costs. 

“For this reason, the national minimum wage constitutes a tremendous burden on the sector that is exacerbating the already crippling external pressures on farmers,” Agri SA said. 

National collective bargaining co-ordinator for the Consolidated Employers’ Organisation, Daniel van der Merwe, has also previously said that small to medium enterprises (SMEs) in South Africa may struggle to afford the national minimum wage (NMW).

He warned that this could lead to an uptick in unemployment and business failures.

SMEs are the country’s largest employers and a significant contributor to GDP. 

“One should never ignore the hardships faced by many minimum wage earners in South Africa and the dire economic circumstances they find themselves in,” he said. “The purpose of the NMW is to ensure a living wage.”

However, he said South Africa’s current economic environment had placed both wage earners and SME employers in a difficult position.