Underpayment Claims at Bargaining Councils: What Employers Need to Know

Underpayment claims are one of the most common and financially significant disputes employers face at bargaining councils.

Many businesses only become aware of the issue once a complaint is lodged or an audit is conducted. By that stage, the exposure is often no longer limited to a single employee or a single pay cycle.

It is historical.

In South Africa, underpayment claims can result in backpay, interest, penalties and enforcement action, even where the employer believed it was paying employees fairly.

The Misconception: “We Pay Market Rates, So We’re Compliant”

Employers often assume that if they:

• Pay above minimum wage

• Follow internal salary structures

• Benchmark against the market

they are compliant.

This is not necessarily correct.

If a bargaining council applies, the employer must comply with the prescribed minimum rates and conditions in the relevant collective agreement, not just what appears reasonable or competitive.

What Counts as an Underpayment?

Underpayment is not limited to basic salary.

It can include failure to comply with:

• Minimum wage rates

• Overtime rates

• Allowances (such as travel or tool allowances)

• Leave pay provisions

• Public holiday pay

• Benefit fund contributions

• Bonuses or industry-specific payments

Even small discrepancies can accumulate into significant liability over time.

How Underpayment Claims Arise

Underpayment claims typically arise through:

Employee complaints

Employees become aware of council rates and refer disputes.

Bargaining council audits

Councils conduct inspections and identify non-compliance.

Enforcement processes

Compliance orders are issued and escalated.

In many cases, employers are unaware of the issue until it is formally raised.

Where Employers Commonly Get It Wrong

1. Not Realising a Bargaining Council Applies

This is the most common starting point.

Employers assume they are outside the scope of a council and structure their payroll accordingly.

If that assumption is incorrect, all payments may be measured against the council’s requirements.

2. Misunderstanding the Applicable Rates

Even where employers are aware of a council, they may:

• Apply outdated rates

• Misinterpret wage tables

• Overlook industry-specific provisions

This can result in systematic underpayment.

3. Ignoring Allowances and Additional Benefits

Employers often focus on basic salary and overlook:

• Mandatory allowances

• Contributions to benefit funds

• Sector-specific entitlements

These are frequently the basis of claims.

4. Inconsistent Application Across Employees

Differences in pay structures or treatment can expose employers to:

• Multiple claims

• Broader audits

• Increased scrutiny

Consistency is critical in regulated sectors.

5. Failing to Address Issues Early

Employers sometimes:

• Ignore complaints

• Delay engagement with the council

• Assume the issue will resolve itself

This often leads to escalation and increased liability.

The Real Risk: Accumulated Liability

The most significant risk in underpayment claims is not the current shortfall.

It is the historical exposure.

Underpayment claims can extend over:

• Months

• Years

• Entire periods of employment

This can result in:

• Substantial backpay obligations

• Interest on arrears

• Additional penalties

• Enforcement proceedings

For many employers, this is where the issue becomes commercially serious.

A Practical Example

A business applies its own salary structure across a workforce.

It is later determined that a bargaining council applies and that:

• Minimum wage rates were not met

• Certain allowances were not paid

• Contributions to benefit funds were not made

Outcome:
The employer may face a claim covering multiple employees over an extended period, significantly increasing the financial exposure.

Why Employers Only Discover This Too Late

Underpayment issues are often not visible internally.

Employers focus on:

• Payroll systems

• Internal policies

• Market benchmarking

What is overlooked is whether an external framework imposes higher or different standards.

By the time the issue surfaces, it is usually through:

• A complaint

• An audit

• Enforcement action

Can Underpayment Be Defended?

Employers sometimes believe that:

• Lack of knowledge

• Good faith

• Internal policies

will protect them.

These factors may be relevant, but they do not necessarily eliminate liability.

The primary question is whether the employer complied with the applicable collective agreement.

How Employers Can Reduce Risk

To manage underpayment risk effectively:

• Confirm whether a bargaining council applies to your business

• Review applicable wage tables and conditions

• Ensure payroll systems align with council requirements

• Identify and address any discrepancies early

• Engage proactively if issues arise

The earlier the issue is identified, the more options are available.

Final Thoughts

Underpayment claims are rarely about a single mistake.

They are usually about a pattern of non-compliance that has developed over time.

Employers often believe they are compliant until the issue is tested against a bargaining council framework. By then, the exposure may already be significant.

Need Advice on Bargaining Council Compliance?

Barter McKellar advises employers on bargaining council compliance, underpayment claims, audits and enforcement disputes.

If your business is facing a claim or is unsure whether your payroll aligns with council requirements, early legal guidance can help limit exposure and manage the process effectively.

Contact our team for practical, commercially focused labour law advice.