Leave & Absence

How is ‘remuneration’ defined and why is this important?

Wages and remuneration are not the same thing at all, and both are separately defined in the BCEA.  Conventionally, we make the distinction between ‘earnings” which is the amount in the pay packet,and ‘rates of earnings’ which is the basis of calculation of pay.  So, a fitter may earn R4500 for a weeks work, based on his actual hours, overtime, and (even possibly the many ‘allowances’!) – but his pay is calculated on his rates of earnings, which could be say R13.50 an hour.

Wage therefore is a figure in money terms, that applies to an hour of work, and 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 an employee ordinarily works in a day or a week”

Now, why is this important?  Firstly, the BCEA specifies that certain payments are made at the rate of ‘wage’, not the greater figure of remuneration.  So, for example, sick leave and public holidays are paid at the rate of ‘wage’, but if you are paying someone in lieu of notice, then this has to be paid at remuneration.

The greater the difference between your wage and your remuneration, the greater will be your susceptibility to wage drift.  A hall mark of a pay structure which is dangerously unstable is an ever widening gap, and the more ‘allowances’ you have, the less control you will have.

Typically, this comes about because wage drift is multiplicative (exponential), and not additive (linear).  So, when you increase you rates, say in a wage negotiation, you will tend to find that the allowances will often increase more than proportionately – very often because premia, such as overtime or shift  are paid as a percentage of the base rate, and employers often do not allow for this in their calculations when costing the effect of a wage increase.

Also, given that labour costs, such as overtime, are not always controlled as well as they should (do you have a monthly printout of percentage overtime worked? If not, you should have!).  

When structuring a payment system, you need to remember that wage will often be artificially low when compared to total package – another reason why cost to company is an attractive means of viewing the real effect of the cost of employment.

Another area where it is important, is in any calculation of unit labour cost, which is, after all, the single most important productivity statistic.  Any relation of output to ‘wage’ could yield a completely incorrect notion of what the true labour costs are.

By and large, whilst the notion of the wage rate is important – no less than in wage negotiations in a unionized environment, the figure can be confusing.  Rather keep a one sharp eye on this, but always have the other firmly fixed on total employment cost.