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Consider inflation for workers’ sake

I HAVE felt compelled to write on behalf of several wrongly dismissed and retrenched workers in Zimbabwe.

It is common cause that labour disputes are taking so ma

ny years to resolve through the courts.

When a labour dispute is finally resolved, say after two years, the employer is obliged to pay the employee backpay calculated to include interest at the statutory rate of 30% pa.

The salary and benefit arrears at the end of two years are completely eroded by the rampant inflation currently running at 502% pa.

In the meantime, and during the two years, a shrewd employer, especially in the financial service sector, simply makes provisions for backpay and invests the funds in the money market at a rate of say 200% pa making an interest margin of 170% pa (200 – 30%).

If the amount owed to the employee is estimated to be around $500 million for instance, the employer invests this amount in the money market over a two-year period at 200% pa, meaning the employer will earn, including the principal amount, $4,5 billion using simple interest.

After paying the employee $845 million less tax, the employer earns a net investment income of $3,66 billion.

In normal financial transactions, interest is compounded for periods ranging from one to 12 months and in this case, the prejudice to the employee is even greater.

In the current economic environment in Zimbabwe, where companies are downsizing or winding up, leading to retrenchment of workers, retrenchments or dismissals of employees have become a lucrative source of investment income for employers especially in the financial sector.

The Minister of Finance, Dr Hertbert Murerwa, in his 2006 budget statement announced a number of tax relief measures to cushion employees in general, and retrenchees in particular, in view of the hyperinflation obtaining in the country.

While welcoming his tax concessions, I cannot understand why he, and the Justice, Legal and Parliamentary Affairs minister are enriching employers at the expense of employees in as far as payment of backpay at the current statutory interest rate of 30% pa is concerned.

Furthermore, in the budget statement, Murerwa proposed to empower the Zimra commissioner general to charge market-related interest rates on unpaid penalties with effect from January but did not review the statutory interest rate of 30% pa charged on unpaid salary and benefit arrears to market rates.

The plight of employees is further worsened in that the benefit arrears attract what is deemed income benefit tax which is charged by Zimra at the rate of 16% pa.

Interest rates have a strong relationship with inflation and as such, the statutory interest rate currently at 30% pa should be reviewed on a regular basis and in line with annual inflation trends in order not to prejudice employees.

Where interest rates are negative such as in Zimbabwe, employers will drag labour disputes for as long as possible, knowing very well that by the time these arrears/packages are payable to the employee, they are firstly completely eroded by inflation and secondly, the employer will have earned substantial investment income from the funds to pay employees’ salary and benefit arrears and still make a handsome profit on the invested funds.

This statutory interest rate at 30% pa is actually an incentive to employers to delay payment to employees as much as possible.

In my view, it is immoral for the government to enrich employers at the expense of employees.

In the interest of all workers in Zimbabwe and social justice at the work place, I call upon the two ministries concerned to review the statutory interest rate which currently stands at 30% pa in line with inflation trends as a matter of urgency.

Disgruntled Employee,


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