South Africa’s take-home pay took a sizable downswing in July 2020, following on from June 2020’s figures and, to some extent, mirroring the movements in the economy.
However, other drivers that contributed to this month’s movements should be considered as these would also inform the direction of salaries and wages in the coming months when government’s relief funds come to a close. The BankservAfrica Take-home Pay Index (BTPI) has provided valuable information and insights not only of salary trends but also of the curiously high number of individuals not getting a paid a salary or wage throughout the lockdown period in South Africa.
“We have observed large declines in the number of salary and wage payments that are routed through the National Payments System for processing by BankservAfrica,” says Shergeran Naidoo, head of stakeholder engagements at BankservAfrica.
“These generate estimations around the number of people receiving take-home pay. But the challenge for the BTPI is that there is no clear reason for the fewer payments.”
In July 2020, the number of take-home pay salaries fell by nearly 35%. This would suggest the impact of the Covid-19 lockdown in weakening the economy and the dire impact this has had on the private sector. However, the latest June and July economic data, including BankservAfrica’s Economic Transaction Index, points to an economy in a gradual recovery.
“Some of the declines in the BTPI comes off a very high base in July 2019 where income increased by 12,6% year-on-year and rose by 7% annually in June,” explains Mike Schüssler, chief economist at economists.co.za.
“This follows from the South African national election in May where additional staff were employed in the run-up to the election and during the process. There was also the overtime pay for police and the army in July and August. All of these contributed to an increase in the number of payments disbursed over that period. This high base resulted in larger than usual annual declines for the number of salaries and wages passing through payment distribution agents.”
However, the 35% decline in July 2020 can also be attributed to the Covid-19 UIF TERS system pay-outs that carried its own set of challenges. UIF payments do not get taxed and payroll systems are set up to deduct tax commitments, pension, medical aid, garnishee orders and the like from the funds it receives from firms to pay their employees their salaries.
“The part UIF and part salary payments that typified the UIF TERS programme, created disorder for payroll systems and these payments had to either be rewritten or circumvented to help employees receive the right amount, as dictated by the normal payments combined with the UIF Payments. As many UIF TERS payments were also delayed, this created even more confusion and problems,” explains Schüssler.
“Therefore, we estimate that about 40% of all salary payments – or 1,2-million payments – were processed by BankservAfrica in July 2020. But, as smaller companies do not use payroll agents, we estimate that only about 40% of the 1,2-million would have been impacted,” says Naidoo.
It is possible that because of UIF TERS, there was an estimated 480 000 reduction in salary payments via the traditional payroll systems, due to the payments being made via different means.
As monthly payments equalled only 2 406 000 payments, it seems that about 2,9-million people were paid out of a normal 3,3-million to 3,6-million normal estimated monthly payroll payments, represented in the BankservAfrica Take-home Pay Index for July 2020.
“The reduced number of payments may be the result of different reasons – some could be temporary, others could be for reasons that are not directly related to job losses,” explains Schüssler. “But all in all, we believe that the impact on employment will only be seen in the coming months as the UIF TERS payments come to an end, some interim laid-off workers are re-employed and get their income back, and the economy normalises to a certain degree.”
BankservAfrica’s monthly measured private pensions increased by 2,7% in real terms but the trend of fewer pension payments has continued for the fourth consecutive month. Over the last year, the nominal BankservAfrica Private Pension Index (BPPI) has not grown and this is probably due to the poor performance of pension fund assets in equities and bonds and reductions in interest rates.
“The combined private pensions and take-home pay, as measured by BankservAfrica, took a slide of 33,8%. This indicates that when government’s relief funds for individuals end, consumer spending may once again wane,” says Naidoo.
This is already somewhat evident in July 2020’s retail sales figures, released yesterday by Stats SA, which declined by 9% on an annual basis and 1,1% from June 2020. These suggest the rebound may be faultering somewhat.
However, indications are that many firms can operate and pay their own salaries again – although anecdotal evidence does point to some salary decreases. “A clearer picture of actual take-home pay and pensions will emerge in October and November, when the sizable UIF payments stop and government’s additional SASSA’s relief payments cease,” says Schüssler.