From the perspective of the employee
A range of employers currently provide transport to their employees as a result of sectoral dynamics and collective arrangements that result in working hours falling outside regular public transport hours (for example, in the retail, farming and security sectors).
The NHTS found that the proportion of workers who received a travel allowance from their employer dropped from 3.4% in 2003 to 2.3% in 2013. The only exception is in Limpopo, where the percentage who received travel allowances increased from 2.7% to 3.0%.
The work of Harvard economist Ricardo Hausmann8 shows us that the transport challenges outlined in the first section of this chapter are, for all intents and purposes, an ‘effective tax’ on employees. In South Africa, it is a regressive one at that, with a disproportionately greater impact on poor households.
Hausmann presents the following example:
Low-income formal-sector workers commute for three hours a day and spend the equivalent of two hours of work on transport costs, transforming an eight-hour work day into an 11-hour day. Their pay, after transport costs, is the equivalent of six hours of work.
This implies a 45% effective tax, and is one reason these workers may be inclined to take a lower-paying job in the informal sector nearer to where they live.
This regressive tax (in time and money spent) may also account for the discouraged workers referred to in the previous section. Kerr calculates this using the example of a worker earning R3 000 a month, which is not too far from the median wage:
Consider a full-time worker with a monthly income of R3 000, which amounts to an hourly wage of around R17.00. If they spend R300 a month on transport (not uncommon for someone taking a bus), their net monthly income would be 10% lower (at R2 700) and their hourly wage after transport costs would be R15.70.
If we add two hours spent commuting (a little more than the average in 2013) to an eight-hour work day, then the effective hourly wage would come down to R12.50 – 28% less than the wages of an individual who has no transport costs and spends no time commuting (for example, those who work from home or who work very near to home).
From the perspective of the employer
Tax implications of transport services as a fringe benefit
We have considered the significant costs and time spent commuting. Yet only 2.3% of employees provide transport allowances for their employees. This low figure is an indication of how much of the regressive tax associated with commuting is shouldered by employees.
Employers who wish to contribute to transport costs or provide transport for their employees must consider the tax implications of providing such a service. Any allowances for transport are fringe benefits that are included in an employee’s total cost to company, and are therefore taxable – a situation which may serve to undermine the ‘solution’ in the first instance. There are, however, exceptions.
South African tax law makes provision for employers to provide transport solutions without adverse tax consequences for employees. In a recent binding general ruling, in line with section 89 of the Tax Administration Act of 2011, the South African Revenue Services (SARS) makes provision for no value to be placed on transport services:
Paragraph (10)(2)(b)
The taxable benefit will attract no value where any transport service is rendered by any employer to his employees in general for the conveyance of such employees from their homes to the place of their employment and vice versa.
What does the law say?
The binding general ruling goes further to limit the kind of arrangements that would be exempt from tax:
An employer may arrange for employees living within a certain radius to be collected from or dropped off at a common area or central point between the employees’ homes and place of employment. An employer may also provide transport services for only part of the trip between the employees’ homes and place of employment.
Before these general and private rulings clarifying the interpretation of transport as a taxable fringe benefit, many employees in sectors where such arrangements are common experienced declines in their disposable incomes as a result of the value attached to these arrangements in the cost to company calculation.
In light of the above rulings, what impact will this clarity have for collective agreements in sectors where such transport arrangements are prevalent?
In numerous collective agreements, the definition of ‘remuneration’ excludes transport allowances, as this definition from the National Bargaining Council of the Electrical Industry shows:
“Any cash payment or payment in kind provided to enable the employee to work (for example, an equipment, tool or similar allowance or the provision of a transport allowance to enable the employee to travel to and from work)9.”
In some instances, transport allowances are explicitly referred to in collective agreements and form the basis of the total cost to company. Collective agreements in the auto sector, for instance, make provision for transport allowances in the form of an annual cash transport allowance, defined as follows:
“All hourly paid employees shall be paid a once-off annual cash transport allowance [...] all these payments will not be applicable to employers whose transport allowance/motor vehicle benefit is in excess of the respective transport allowance/benefit10.”
In the auto sector collective agreement, this annual figure (set to be adjusted for the wage increase in 2016) was R1 200 in 2016 – an allowance from the employer of R100 a month. As welcome as this may be, if one looks at the figures in perspective (as presented in Table 1 on page 233), an overwhelming number of commuters spend more than R200 a month on transport. Most of the costs of commuting (and thus productivity costs) are carried by employers, even in sectors characterised by relatively highly paid and skilled workers, such as the auto sector. If one factors in challenges of affordability on the part of employers, it’s clear that this isn’t a simple matter.
An agenda for action
Employee well-being, productivity and morale are a product of conditions in the workplace as well as the external spaces and experiences that are connected to work. One such experience is the long commute many employees in South Africa undertake to get to their places of work. The challenges related to this commute include cost, waiting times and the trade-offs associated with different modes of transport. These challenges are a legacy of segregationist policy and therefore need to be addressed by responses from multiple stakeholders. All stakeholders – employees, policymakers and employers – have a role to play in finding a solution.
Policymakers should:
- Review the existing allocation of subsidies in line with current usage patterns, not the current focus on bus and train, given that such a large number of employees use taxis.
Government should:
- Collaborate with the private sector to undo the challenges of effective taxation of the poor.
- Enable greater productivity by helping employees cut down on the rigmarole of commuting.
Employers should:
- View providing transport services to employees as a major differentiator in attempting to attract the best human capital, instead of a benefit to be paid for by employees.
- Offer them more flexibility in the location of workplaces and the allocation of travel allowances.
