Big South African businesses will now have to show the salary gaps between top and bottom earners

The Department of Labour has amended the Employment Equity regulations to include an updated EEA4 form applicable to ‘designated employers’.

The objective of the EEA4 form is to collect information for the assessment of the remuneration gap between the highest-paid and lowest-paid employees, and at the same time assess inequalities in remuneration in relation to race and gender in the various occupational levels.

According to PwC, the form is applicable to designated employers who employ 50 or more employees or have a total annual turnover that exceeds the annual turnover of a small business (as prescribed).

‘Designated employers’ can include listed and unlisted companies as well as state-owned enterprises, the government, and non-profit organisations that fall within the definition.

What needs to be disclosed? 

In addition to the tables recording the number of employees and income differentials at each occupational level in terms of race and gender, designated employers must indicate the following:

  • The average annual remuneration of the top 10% of their top earners;
  • The average annual remuneration for the bottom 10% of their bottom earners;
  • The median earners remuneration in the organisation.

Organisations will be required to indicate whether or not they have a policy in place to address and close the vertical gap between the highest- and lowest-paid employees in their workforce.

Against this backdrop organisations are required to:

  • Disclose the vertical gap between the highest and lowest paid worker in the organisation in terms of the policy, expressed as a multiple; and confirm whether or not the remuneration gap between the highest- and lowest-paid employees in the organisation is aligned to the policy to address that vertical gap;
  • Indicate whether AA (Affirmative Action) measures to address the remuneration gap are included in the organisation’s EE (Employment Equity) plan;
  • Select a key reason for the income differentials. This can include, inter alia, seniority/length of service, qualifications, performance, demotion, experiential training, shortage of skill, or transfer of business;
  • The form must be signed by the chief executive officer or accounting officer.

PwC noted that the legislation does not state that the information be publicly disclosed.

“According to section 10 of the Employment Equity Regulations, an Employment Equity Report is a public document, but the Income Differential Statement reflected in the EEA4 Form is expressly excluded from this rule.,” it said.

Implications 

The information that must be disclosed suggests that where there is an income differential identified through this reporting process, it must be justifiable, said PwC.

“Against this backdrop, disclosing the vertical pay gap and whether there is a policy to address this will require that organisations seriously consider the adoption of an internal fair pay charter or framework.

“That charter should clearly set out an organisation’s philosophy towards fair and responsible remuneration, monitoring the organisation’s fair pay barometer, and identifying the ways in which the organisation can address its internal income differentials in a sustainable manner.

“While listed companies have taken it upon themselves to actively analyse their internal pay ratios and develop policies addressing this, unlisted companies should also take action by identifying their internal pay differentials, develop a policy framework around fair pay, and put plans in place to eliminate unjustifiable differentials in pay.”

PwC said that remuneration committees should also work closely with their counterparts in the Social and Ethics Committee and actively identify and understand how income is distributed throughout their organisation.


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Big South African businesses will now have to show the salary gaps between top and bottom earners