What do I do if during an inspection it was discovered by the Department of Labour or the Bargaining Council Agent that there is an underpayment of my employee’s wages?
When the Department of Labour or Bargaining Council conducts an investigation and uncovers that employees have been underpaid, employers are legally obligated to rectify the situation. The process of back pay can seem stressful, but ensuring compliance with labour regulations is essential. This guide outlines the necessary steps for employers can follow when handling back pay due to wage underpayment.
1. Understand the Legal Context
Back pay refers to the amount of money owed to an employee when they have been paid less than their legal entitlements. The need for back pay typically arises when:
There is a violation of the National Minimum Wage Act or Prescribed Wage scale.
Employees were not compensated according to the terms of their employment contracts.
Miscalculations occurred in wage payments or benefits.
Discrepancies during a workplace audit or investigation.
In South Africa, underpayment is governed by the Basic Conditions of Employment Act (BCEA), the National Minimum Wage Act, and the Main Collective Agreement of Hairdressing Cosmetology, Beauty, and Skincare. The Department of Labour and National Bargaining Council has the authority to demand employers compensate employees for any unpaid wages, with potential penalties for non-compliance.
2. Determine the Extent of Underpayment
Once underpayment is confirmed, the employer should immediately review payroll records to determine:
Which employees were underpaid.
The period over which the underpayment occurred.
The amount owed to each affected employee.
It is crucial to calculate these figures accurately, considering all wage components such as basic salary, overtime, leave pay, and other entitlements that were underpaid.
3. Calculate the Back Pay
The back pay calculation should include:
Hourly or daily wage rate: Ensure you’re using the correct wage rate according to the employee’s role, contract, and the applicable minimum wage as per the area wage scale.
Period of underpayment: Calculate the exact period over which the underpayment occurred.
For example:
If an employee was underpaid for 12 months, the employer must determine the difference between what was paid and what should have been paid for each month, and then multiply it by 12.
4. Provide Written Confirmation to Employees
Once the calculations are complete, employers should inform the affected employees in writing, outlining:
The reason for the back pay (e.g., as directed by the Department of Labour/ Bargaining Council).
The total amount of back pay they are entitled to.
How and when the back pay will be processed? Advised to enter into a settlement agreement if over a duration period.
This communication helps build trust with employees and demonstrates a proactive approach to resolving the issue.
5. Process the Payment
The employer must then ensure the back pay is processed as soon as possible. Payments should be made in accordance with the timeline provided by the Inspector or Council Agent or as soon as the miscalculation is identified. Typically, back pay should be processed as part of the next payroll cycle or as a separate payment if urgent.
Ensure the payment includes any additional taxes or deductions that apply, such as unemployment insurance contributions and sick pay fund if applicable.
6. Report the Resolution to the Inspector or Bargaining Council Agent
Once back pay has been issued, employers should report back to the Inspector or Bargaining Council Agent, providing proof that the underpayments have been corrected. This may include:
Payroll records showing the payments.
Signed acknowledgments from employees confirming receipt of the back pay.
Failing to address back pay issues properly can lead to further penalties, including fines and possible legal action.
7. Prevent Future Underpayment
Employers should take proactive steps to ensure that wage underpayment does not happen again:
Conduct regular payroll audits - to ensure employees are receiving correct wages in line with the law.
Stay updated on changes to area wage scale - and regulations, especially when minimum wage increases are announced.
Rectifying wage underpayment through back pay is not only a legal obligation but also a vital step in maintaining trust with employees and complying with South Africa’s labour laws. By following these steps, employers can ensure a smooth and compliant process, safeguarding the business against potential penalties while fostering a fair workplace for all employees.
