The Minimum Wage Debate (Tax Credit for Individual Employers)

If the announced timeline is kept, Chairman of the Minimum Wage Advisory Commission, Silvera Castro, should any minute now, be presenting to the Hon. Derrick Kellier the Minister of Labour, recommendations concerning the national minimum wage and the minimum wage to security guards.

Since January 2014, the national minimum wage has stood at $5600 and $8,198.80 for industrial security guards for a 40 hour work week. The Planning Institute of Jamaica (PIOJ) has proposed a 13.3% increase while the Jamaica Security Guard Association believes there is justification for an increase of 30%.

According to the PIOJ’s recommended daily allowances (RDA), a family  of an adult female and two teenage children, should be consuming foods that provide 14,500 Kcals and 17,415 Kcals respectively, per week. This is no easy feat to achieve for even a family of two, when the minimum wage is the only source of income from which housing cost, transportation, school expenses, food and other household needs are to be accessed.

The household helpers who maintain their dignity and suppress any temptation to share in half their bosses’ detergent and dilute the cleaning agents to get a ‘cut’ for their own homes are to be commended. The security guards that reject schemes to rob their places of work are to be commended. Young intelligent and skilled youth now accepting the minimum wage while they accumulate some experience to match their qualifications are to be commended. Clerks and secretaries working in small businesses that pay no more than the minimum wage, who reject opportunities to sell clients’ lists to competitors and marketers to support their income are to be commended.

Rich get Richer, Poor get Poorer

Among those employers who are expected to respond to  minimum wage increases are those slave-drivers who have employees working in excess of forty hours (40 hrs) per week without overtime compensation, those who hire for one role then expand the duties to cover the duties of three distinct roles and others who are simply just oppressive- a dread to work for generally, more-so for low wages.

Within every group there are always those who save face for the rest. Many employers across the country are guided by their conscience and pay workers who would only qualify for the minimum wage, more than the going rate.

By a guess, most employers respond to minimum wage talks with contradicting emotions -sympathy and outrage, understanding and disdain. The weak spending power of the Jamaican dollar is well known and so there is an understanding of the difficulties low wage workers face. Nonetheless employers are often more troubled about the likely impact of an increase on their cash flow and earnings, especially in a market where the cost of core business inputs such as oil and energy fluctuate with uncertainty and where the road to economic growth is slow and uncertain.

What is good for the business community, is that they are generally engaged in consultations when these talks come around and so the decisions are to some degree guided by the needs of employees and the ability of employers to pay.

There is one group of employers though, a relevant niche, responsible for the employment of a good size of the low income labour force, who are not factored in minimum wage discussions i.e. P.A.Y.E individual employers. The P.A.Y.E individual employer is that employed individual that pays a fixed and recurring salary expense from their own highly taxed salary. These persons employ household helpers, babysitters, after-school care givers, washer ladies, chefs/cooks, gardeners, ironing ladies et al; they assist greatly in providing a steady income to a segment of the workforce that has underlying economic and social importance to every government.

It is quite easy to point to the matter of choice concerning the use of what some may call ‘luxury’ arrangements but hiring a household helper is no longer just for the rich. People at different levels of the middle income category may do this for various personal reasons but the government benefits in significant ways as well:

Environment: de-bushing and de-silting of exterior gutters is not just a benefit to the home-owner, it is a benefit to communities. Health: the overcrowding in some early childhood institutions, nurseries and after care facilities for instance, present a breeding ground for infection and bacteria transfer and outbreak. The decision some parents take to have in-home care may be motivated by self-interest but it also helps to balance the country’s health management scale. Economic: while no new money is ‘created’ in the process, money moves around more families and impacts more lives. Without these arrangements governments would face a much higher level of unemployment among vulnerable groups. Social- the social impacts of unemployment are well documented – discrimination, crime and violence and depression among other things.

Businesses do not have the same needs for the workers that P.A.Y.E. workers employ. Businesses need people to make money, individuals employ people to address flexible needs. When the minimum wage increases it has a more immediate and long term impact on P.A.Y.E individual employers who are less likely to get ‘real’ increases as their own employers adjust for the shift in the minimum wage threshold. P.A.Y.E individual employers are also less flexible in their circumstances than their business counterparts, they cannot adjust pricing and other variables to compensate for the loss and so many simply let go of their employees or reduce their hours.

What would be ideal for the P.A.Y.E individual employers is a tax credit which is accessible under special conditions, for instance, the P.A.Y.E employer:

  • must pay NIS on behalf of the employed
  • can only access the tax credit where income has not increased over the year or has not increased by more than 5% above the inflation rate.
  • has a full time employer and subscribes to the rights of domestic workers evidenced by a contract or other acceptable documentation.

The USA has had many programs to drive employment of people from vulnerable groups over the years, the Work Opportunity Tax Credit -(WOTC) being the latest, ended in 2014. The government of Jamaica can design its own tax credit program to encourage the continued employment of persons in low skilled areas in full time positions.

The Jamaican government has taken encouraging steps away from the tax policies previously cut and pasted from other jurisdictions and has to some degree been giving ears to the private sector on tax reform. Good and well but the interests of a niche group like P.A.Y.E individual employers, are not likely to make it to the table of national tax reform discussions. Until the ministry with responsibility for culture gets a grasp of the role it can play to influence policy outside of its own ministry, to impact the development of the various segments within the society, this will continue to be the case.

Relief for the race horse industry, the hotel sector, companies on the junior stock exchange are well noted as efforts for niche groups within the society, let us now look at the niche groups within the P.A.Y.E group and see what further relief is warranted and move to grant it. After all, P.A.Y.E is the backbone of our tax program right? The powers that be can invest in the research to determine the cost of such a program but in the context of other adjustments made, this should not be a significant loss. The government of Jamaica needs to reconnect with middle income Jamaica and those marginally above poverty who also play the role of middle income Jamaica, how about making this the start?

C.E. Clarke for Help Mi Consulting

(c)2015

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