• National Minimum Wage to hit the tourism and hospitality industry hard
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National Minimum Wage to hit the tourism and hospitality industry hard

13 December 2018

Opinion By: Lee-Anne Bac, Director, BDO South Africa

President Ramphosa signed the National Minimum Wage bill on 23 November 2018 which applies to all industry sectors and supersedes sectoral determinations and is applicable from 1 January 2019. The National Minimum Wage will be a compulsory R20 per hour (ph) for all sectors excluding farmworkers (R18ph) and domestic workers (R15ph). The bill has been discussed and debated for a number of years so most employers should be aware that a National Minimum Wage of R20 ph is to be implemented, but the short-timeframe for implementation (1 January 2019), as announced on Friday 30 November, has come as a surprise.

Currently, and originally effective until 30 June 2019, the minimum wage in the hospitality sector is R17,34 ph for employers with 10 or less employees (which is the lion’s shares of the tourism and hospitality sector) and R19,35ph for hospitality employers with more than 10 employees. The rest of the tourism industry doesn’t have a specified minimum wage.

Despite an industry sectoral determination, the hospitality and broader tourism sector are known to pay low wages and in some cases actually below minimum wage or just on the minimum wage. This means that the new National Minimum Wage will impact the majority of tourism businesses and right in the middle of the busiest time of the year of the industry.

I wonder how many tourism businesses are prepared for the change.

An additional R2,66ph might not seem like a significant amount of money, but the impact on a small tourism business that hasn’t budgeted for the change could be significant. Similarly, the impact on an employee previously earning R17,34 ph will also be significant. This is an additional R519 per month for those that currently work a 45 hour per week.

In these tough economic times, which has certainly been felt by the tourism industry, the minimum wage increase will definitely have an impact on business performance. The additional wages (up to R5 000 per month in a small businesses) will need to be funded by one of three means (or a combination thereof):

  1. Decreasing costs: this is extremely difficult when many businesses have already been focused on cost cutting for more than a year and thus have limited wriggle room.
  2. Cutting jobs: this option would be disastrous for our country and I urge operators to only consider this as a very last resort. Business owners need to recognise the responsibility that they have towards their employees and their families. Laying off an employee will have a significant knock-on effect in families, communities and society. Surely an extra R2,66ph isn’t worth this catastrophic impact? Especially when the tourism industry is one of the only sectors that our fragile economy is reliant on at present to create and sustain much needed jobs.

    So that leaves the industry with only one more option to cover the increased cost of labour:

  3. Increasing Revenue i.e. rates: This may seem like a simple solution – “charge the customer more”. But in reality rate changes are difficult to implement quickly as rates are often set up to 18 months in advance. The tourism value chain is complex, meaning that rate changes can’t happen overnight and definitely not by 1 January. Furthermore, if rates are increased significantly we are likely to see a decrease in demand. So increased rates don’t necessarily translate into increased revenue – finding the “sweet spot” isn’t that simple. Tourism is an extremely competitive industry both in the domestic and international markets.

So in short, I expect that the following is likely to happen in 2019:

  • Some small tourism businesses are likely to be “blissfully unaware” of the new National Minimum Wage and will continue paying low wages – a “take it or leave it approach” whilst “operating under the radar”
  • Larger and more mainstream operators will ensure that they comply and will take the short-term knock to the bottom-line
  • We will see a higher than inflation increase in rates in the latter part of 2019 and overall demand for tourism products and services will take a knock, especially from the domestic market (unless there is a significant improvement in the country’s economic performance).

The tourism and hospitality sector needs to comply with the new National Minimum Wage, but at the same time we need to safeguard existing jobs and ensure that we continue to create new jobs. To achieve this, we need a 2-prong approach to minimise the impact on the sector and its employees, viz increased labour monitoring and enforcement coupled with increased marketing spend (and budget) for national, provincial and local tourism agencies to ensure that new markets are identified and targeted and that demand continues to grow during these times of transition.

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