The minimum wage increase: relief possible for some businesses


Worried about the impact of the new minimum wage? The agricultural sector and struggling businesses can apply to pay less than the latest increase, according to analysis provided to Business Advantage PNG by KPMG’s Port Moresby office.

WorkersThe national government approved a 40 per cent increase in the minimum wage earlier this month, effective immediately.

There are further increases of five per cent on 3 July 2015, and an additional increase of four per cent on 3 July 2016.

The Labour Department has said it will establish a committee chaired by the Acting Secretary George R. Vaso to consider applications for relief.

Analysis provided to Business Advantage PNG by KPMG’s Port Moresby office says struggling businesses can apply to reduce the increase by up to 25 per cent, and agricultural businesses can apply to reduce the increase by up to 50 per cent.

The legislation says that they can reduce the minimum wage rate by not less than 75% for struggling business and not less than 50% for agricultural sector.

‘Until such time as the committee is established, these business will be granted a grace period of three months from the 3rd of July 2014,’ KPMG advises.

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Impact on taxes?

KPMG’s analysis says the only effect that the minimum wage increase will have on companies’ tax obligations is that it could affect the amount of Training Levy payable. The levy is currently two per cent of annual payroll exceeding K200,000.

‘Payroll costs could increase by 40 per cent if the majority of staff are on a minimum wage,’ notes KPMG.

‘This amount payable is still dependent on the training contributions for PNG citizen staff, which means the training levy can be decreased by training costs relating to PNG citizen staff.

‘The minimum wage increase will have no effect on individuals’ tax requirements, as the minimum wage of K3.20 is under the minimum tax rate of K10,000.

‘There will be additional payroll [administration] costs associated with operating the business as a consequence of the increase in the national minimum wage.

‘Businesses can either choose to absorb this additional cost or they could pass on the cost to their customer by increasing the price of goods and services.

The analysis warns jobs could be lost as a result of the increase in minimum wage, quoting a Canadian Federation of Independent Business report which estimated for every 10 per cent increase in the minimum wage, employment of minimum wage workers falls between one and four per cent, depending on the type of job or sector.

The main points of the determination are:

  • The new minimum wage of K3.20 per hour came into force on Thursday 3rd July 2014;
  • After one year (due on 3/07/15) the minimum wage rate will go up to K3.36 per hour;
  • After two years (due on 3/07/16) the minimum wage rate will go up to K3.50 per hour;
  • Employers in the Agriculture sector are eligible to apply for partial payment of the minimum wage on the condition that they provide employees with benefits in kind;
  • Employers not in the agriculture sector are eligible to apply for an incapacity to pay the full minimum wage rate;
  • Camping and tool allowances are increased by 31% and other allowances are left to collective bargaining.
  • The Department of Labour will monitor and police the terms of the Determination.

Source: Lae Chamber of Commerce and Industry


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