- Personal Finance
Are you being paid correctly?
Are you being paid correctly?
This might sound like a very boring topic, but the words that one of my clients told me once "You can mess with a mans wife and get away with it, but don’t mess with his money!" made me understand just how important it is.
Now 1st of all, I'm not going to beat around the bush with some long boring story about finances, tax etc. It just made me realize how many people that work for small or large businesses doesn't know their rights regarding Leave pay, Retrenchments Leave Paid Out etc.
Now I know some people are not going to be very happy with me for telling these things but its the truth and it is law! The things I'm going to use for examples are based on the Republic of South Africa laws regarding the Basic Conditions of Employment Act.
There are two things I'm going to talk about, BCEA Leave pay or Holiday Pay and Termination Leave pay or Leave Paid Out.
(PLEASE NOTE THAT IF YOUR COMPANY BELONGS TO A BARGAINING COUNCIL THESE RULES DO NOT APPLY!)
BCEA Leave pay or Holiday Pay must be paid out to all employees when they take annual leave. These payments are calculated with specific variable earnings for work done defined by the BCEA, for example Overtime & Commission. These variables are calculated by taking the preceding 3 months or 12 months variables and calculating an average per month and then dividing it by your Rate Factor (which is your Working Hours per month divided by your working hours per day) then times by how many annual leave days you took.
Now that all sounded like Greek but here is an example. I work 8 hours a day, 5 days a week. so 8 times 5 = 40 hours a week, times the average amounts of weeks in a month which is 4.333 = 173.32 hours per month divided by my working hours per day (8) = 21.665 (My Rate Factor)
Now let’s say we are in December and I want to take 15 days of leave, and I received the following variable income in the preceding 3 months.
September Overtime = R500
October Overtime = R300
November Overtime = R700
Total Overtime = R1500 / 3 (To get an Average) = R500 divided by my rate factor to get a daily value (21.665) = R23.08 per day times the number of annual leave days I’m on (15) = R346.18
Now that wasn't too hard was it? It's money which you are entitled to!
The next Payment is Termination Pay or Leave Paid Out. When you decide to leave a company you are entitled to get your annual leave days paid out. Now this one can get very complicated as to the calculation on which of your annual leave days you are entitled to get paid out at BCEA Rate, so I'm not going to go into that. The facts is that if you leave your company for whatever reason and you still have annual leave days entitled to you, then these leave days must be paid out at a Remuneration Rate, not a Wage Rate.
Now 1st of all, what is the difference between Wage and Remuneration? See the following Excerpt from http://www.yellowpayroll.co.za/payroll/help/Legislative_Help.htm
The BCEA refers to Wage and Remuneration as separate definitions. There are certain rules applicable when calculating it.
Wage is used to calculate the following:
- Overtime at 1.5, or double (Sunday) time
Pay for public holidays Pay for sick leave Pay for family responsibility leave etc. Remuneration is used to calculate the following:
- Notice pay (payment instead of working for the notice period)
Severance pay (retrenchment pay) Leave paid out upon termination of employment Leave pay for when you are physically taking annual leave (still employed)
Wage is defined in the BCEA as "the amount of money paid or payable to an employee in respect of ordinary hours of work or, if they are shorter, the hours the employee ordinarily works in the week". It is clear to see that in order for a payment to be part of Wage, it must be paid in cash (i.e. money) AND it must be a payment that is made in respect of ordinary hours worked.
Remuneration is defined in the BCEA as "any payment in money or in kind, or both in money and in kind, made or owing to any person in return for that person working for any other person. Labour law requires that a fair and equitable result must be achieved between the employer and the employee. It is important that this statement is always kept in mind when dealing with wage and remuneration. Any discretionary payments that are not related to an employees' hours of work or performance, are to be excluded from remuneration, whereas any non-discretionary payments (such as a 13th cheque), which are directly related to an employee's hours of work or performance and which are paid in respect of a longer period, must be included in remuneration.
Now that we know what the difference is between Remuneration and Wage, we can calculate the Rate which my annual leave must be paid out at. Now the following things are taken into consideration before calculating these rates. See the following excerpt from http://www.yellowpayroll.co.za/payroll/help/Legislative_Help.htm
Released by Department of Labour on 01 July 2003
The Schedule for Remuneration, which comes into effect as from today (1 July 2003) ends much of the uncertainty surrounding the calculation of retrenchment packages and severance pay by clearly setting out what constitutes remuneration.
The Schedule comes from the Basic Conditions of Employment Act. According to the Act leave pay, notice pay and severance pay are calculated on the basis of an employee’s remuneration. The schedule gives a definitive definition of what constitutes remuneration.
Remuneration, according to the schedule, includes the following:
- Housing or accommodation (whether supplied in cash or in kind)
- A car allowance except to the extent that it is supplied to enable employee to work (i.e. car of traveling salesperson). As a result, where the car is supplied partly for work purposes and partly for personal use, an apportionment will have to be made.
- All cash payments except those specifically excluded in the remuneration, such as gratuities and other discretionary payments.
- Employer contributions to benefit funds
Those payments that are explicitly excluded are:
- Payments to enable employee to work (e.g. tool allowance or transport allowance)
- Gratuities (tips etc)
- Share incentive schemes
- Discretionary payments not related to hours of work or performance (i.e. payments in respect of which employees have no enforceable right)
- Allowances such as entertainment allowance or education or training allowance.
The schedule also deals with the rules on calculating benefits. For example, benefits in kind must be calculated on the basis of the cost to employer or, if it is higher, an agreed value. This provision has been included to prevent employers placing unrealistically low values on these payments. It also resolves the long-standing issue of whether benefits must be valued on a ‘cost to employer’ basis or their market value. It is easy to determine the cost to the employer, unlike market value, which is considerably more subjective.
The remuneration schedule also settles the question of leave pay. The good news for workers is that leave pay will be included as remuneration in terms of the schedule, but only effective from its publication date, 22 May 2003.
On the issue of fluctuating payments, these must be calculated over a 13 week period, while payments received in respect of a longer period must be pro-rated, meaning the employee will only receive a proportion of an annual payment such as a 13th cheque as part of leave, notice or severance pay.
As with many aspects of South African labour law, the schedule only applies to the statutory minimum entitlements that employees are entitled to in terms of the Act. Thus, an employer who grants additional leave or severance benefits, for example, may impose different conditions on additional benefits granted above the statutory minima.
Now these fixed payments as well as your variables should be included for calculating the rate which your annual leave must be paid out at.
I know this seems like a complicated task but remember, it is money that you are entitled to!
I hope this will help some people to be in the clear regarding what they can get upon termination.
All excerpts were taken from http://www.yellowpayroll.co.za/payroll/help/Legislative_Help.htm
I stand under correction in all my statements and everything i said should be confirmed with a professional labour law consultant.
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