Understanding BCEA Variable Pay and Leave Calculation

Variable pay, or fluctuating earnings as referred to in the Basic Conditions of Employment Act, 75 of 1997 (BCEA) is one tricky aspect of managing payrolls in South Africa that employers often miss.

What is BCEA Variable Pay?

The BCEA serves as the cornerstone of labor law in South Africa. One of its goals is to ensure fair labor practices, as highlighted in Section 23(1) of the Constitution. Variable earnings under the BCEA include any fluctuations in pay such as overtime, commission, or bonuses. These kinds of earnings are not fixed and can vary depending on several factors like the amount of work, sales targets met, or business performance.

Applicable Section of the Act

The BCEA specifically outlines the treatment of variable pay in Section 35, which addresses general remuneration principles including the calculation of employees' earnings. This section mandates that fluctuations in earnings, such as those for overtime or commission, should be averaged over a period of 13 weeks. Specifically, the BCEA states in section 35(4):

If an employee’s remuneration or wage is calculated, either wholly or in part, on a basis other than time or if an employee’s remuneration or wage fluctuates significantly from period to period, any payment to that employee in terms of this Act must be calculated by reference to the employee’s remuneration or wage during— (a) the preceding 13 weeks; or 5 (b) if the employee has been in employment for a shorter period, that period.

This is primarily to provide a fair computation of an employee’s average earnings when it comes to calculating leave pay.

The Importance of Averaging Over 13 Weeks

It’s important to note that while it is generally not permissible to use any period longer than 13 weeks for the averaging of fluctuating earnings, in practice employers do sometimes use longer periods, particularly for averaging of performance-based pay that follows annual cycles. This can also be achieved by accruing or paying such payments at more regular intervals even if the performance cycle is longer and thus maintaining stricter compliance with the BCEA.

A shorter period may be used, but only if the employee has been employed for less than 13 weeks in total.

What to Include in Fluctuating Earnings

Under the BCEA, a variety of earnings are considered variable, including:

• Overtime pay
• Commissions on sales or performance
• Bonuses that are not guaranteed or fixed
• Any other payments that vary at each pay period

These categories need careful tracking to comply with the BCEA stipulations fully. Inadequate record-keeping can lead to compliance risks, including discrepancies in payments and potential penalties.

Exclusions

The act specifically excludes, in section 35(5)(b): (i) gratuities: (ii) allowances paid to an employee for the purposes of enabling an employee to work; and (iii ) any discretionary payments not related to the employee’s hours of work or work performance.

Why Adhering to BCEA Matters

Compliance with the BCEA is not just about avoiding penalties; it's about fostering a fair and transparent workplace. Understanding and applying these legal standards helps both employers and employees have clear expectations regarding remuneration.

FAQs

What are variable earnings? Variable earnings include any fluctuating elements of pay such as overtime and commissions that vary from one pay cycle to another.

How are leave pay calculations affected by the BCEA? The BCEA requires that variable earnings be averaged over 13 weeks when calculating leave pay, ensuring a fair assessment of what the employee earns on average.

Should bonus payments be included in variable earnings calculations in terms of the BCEA? This depends on the type and nature of the bonus payment.

• Discretionary bonuses: Not included, in line with section 35(5)(b) of the BCEA, which exempts discretionary payments, provided such bonuses are unrelated to work or performance.
• Performance-related bonuses are normally included as part of variable remuneration since they correlate to work done or results achieved, similar to commissions.
• Fixed annual bonuses (such as guaranteed 13th cheques) are typically considered part of an employee’s fixed remuneration package rather than variable earnings. Such bonuses are usually allocated pro rata and included when calculating leave pay and other statutory entitlements, but not specifically as variable earnings.

Can SuperPayroll help us with BCEA compliance? Yes, SuperPayroll features include standard functionality for averaging variable earnings correctly in terms of the act, though it should be noted that this is highly dependent on client-specific configuration of individual elements for inclusion and the nature of employment contracts. Please contact us for more info.