Labour Brokers and the “Assign Services Case”

The Assign Services case on the “deeming” provision in the Labour Relations Act is apparently due to be heard in February by the Constitutional Court with a judgement expected in April 2018. This ruling has a material impact on all employers who use employees through a labour broker.

As a reminder, the original ruling in the Labour Appeal Court (now being appealed in the Constitutional Court) held that employees deemed to be employees of the employer under the Labour Relations Act were solely the employers of the end client and not employers of the Labour Broker (or other party) with whom they were contracted. This ruling created an odd situation where employees held a contract with one party and were managed by that party, but were actually employers only of another party with whom they had no contract of employment.

Essential Services Ruling

Essential Services Ruling – Social Work, ResCare, Protective Workshops and Day Care

All Social Work Services and services to ResCare, Protective Workshops and Day Care have been legislated as essential services. This means individuals employed in these industries are not permitted to strike!

Section 23(2) of the Constitution of the Republic of South Africa, 1996 (“the Constitution”) states that… “Every worker has the right… (c) to strike.”

Section 65 (1) (d) (i) of the LRA states that… “No person may take part in a strike… if that person is engaged… in an essential service”.

An ‘essential service’ is defined in section 213 of the Act as:
I. a service the interruption of which endangers the life, personal safety or health of the whole or any part of the population; the Parliamentary service; the South African Police Service.

Having considered the written and oral submissions of the parties, as well as the applicable law referred to above, the Panel were of the view that the following services should be designated as essential:

  • Mental health care
  • Diagnostic assessments of new referrals in respect of people with intellectual and psychiatric disabilities
  • Psychological assessments
  • Therapeutic counselling services or any other counselling services
  • Mental health crisis management
  • Court preparation and assistance for victims who fall within the category of “users”
  • Rehabilitation services
  • Treatment (including assistance with adherence to medication)
  • Training (only to the extent that it is offered to the mental health users)

Potential Changes to Employment Legislation

In November 2017, the Department of Labour released three amendment bills for comment. Should they be implemented they would have an impact on employment relationships. This article serves to act as pre-warning to watch this space over the coming months.

  1. Basic Conditions of Employment – proposed changes include:
    1. Provide for daily wage payments for certain employees
    2. Repeal the provisions dealing with sectoral determinations and create transitional arrangements for sectoral determinations
    3. Extend the jurisdiction of the CCMA
    4. Extend labour inspector powers to Unemployment Insurance and National Minimum Wage enforcement
  2. Labour Relations – proposed changes include:
    1. Provide for the extension of funding agreements
    2. Provide for picketing arrangements
    3. Provide for a ratified minimum service
    4. Extend the meaning of “ballot”
  3. National Wage Amendment Bill (discussed in detail in the first article of this newsletter)
    1. Provide for a National Minimum Wage
    2. Establish a National Minimum Wage commission
    3. Provide for a review and annual adjustment of the National Minimum Wage
    4. Provide for exemption from paying the National Minimum Wage
    5. Provide for transitional arrangements for farm and domestic workers

National Minimum Wage Bill

On Friday, 17 November 2017 the Department of Labour published the National Minimum Wage Bill, 2017 (“the NMW Bill”) and the Basic Conditions of Employment Amendment Bill (“the BCEA Bill”) for public comment, pertinent aspects of both are discussed below.

The National Minimum Wage Bill, 2017

The purpose of the NMW Bill is to advance social economic development and social justice by improving the wages of the lowest paid employees, by protecting employees from unreasonably low wages, by preserving the value of the national minimum wage and by promoting collective bargaining and supporting economic policy.

In order to achieve the aforementioned goals, the NMW Bill seeks to provide for a national minimum wage and establish a National Minimum Wage Commission (“the Commission”) which is intended to implement the provisions of the National Minimum Wage Act, 2017 (“the Act”).

The NMW Bill, in its current form, specifies a national minimum wage of R20,00 for each ordinary hour worked. The NMW Bill further specifies that farm workers, domestic workers and workers employed on an expanded public works programme should be paid a minimum wage of R18,00, R15,00 and R11,00 per hour, respectively. Workers who have concluded learnership agreements will also be entitled to allowances, depending on their qualifications, ranging from R301,01 to R1 755,84 per week.

The NMW Bill further prescribes that the payment of a national minimum wage takes precedence over any contrary provision in any contract, collective agreement or law, except a law amending the Act. The national minimum wage must also constitute a term of the employee’s contract except to the extent that the contract, collective agreement or law provides for a wage that is more favourable to the employee.

Furthermore, the national minimum wage is calculated as being the amounts above excluding any payment made to enable an employee to work including transport, equipment, food or accommodation allowance, any payment in kind, which includes board or accommodation, gratuities including bonuses, tips or gifts and any other prescribed category of payment.

If an employee is paid on a basis other than the number of hours worked, the employee may not be paid less than the minimum wage for the ordinary hours of work. Furthermore, it would constitute an unfair labour practice where employers unilaterally alter hours of work or other conditions of employment when the national minimum wage is implemented.

However, the NMW Bill empowers the Minister, on application by an employer, to grant exemptions for payment of the national minimum wage in certain circumstances. The exemption granted must specify the period for which it is granted, which may not be longer than a year, it must specify the wage that the employer is required to pay its employees and any other relevant condition. This may offer some relief to small employers that are genuinely unable to pay employees wages in line with the prescribed minimum.

The NMW Bill also makes provision for the establishment of the Commission to review the national minimum wage and to make recommendations annually for the adjustment of the national minimum wage. The Commission may also investigate the impact of the national minimum wage on the economy, collective bargaining and income differentials.

The Act is to commence on 1 May 2018.

Metal & Engineering Industry Bargaining Council (MEIBC) – Notice

Metal & Engineering Industry Bargaining Council (MEIBC) – Notice by MEIBC on dispute resolution collective agreement.

This notice is replicated from a circular by the MEIBC dated 24 July 2017.

On 21 July 2017 a Special MANCO of the MEIBC resolved to amend and extend the period of operation of the Dispute Resolution Agreement which provides for the dispute resolution procedures in the industry as well as a dispute levy, for a further period ending 31 March 2020.

Parties have also resolved that an application be made to the Minister of Labour to extend this agreement to non-parties.


Per Week Per Fortnight Per Month
R0.71 R1.42 R3.07

The employer pays a matching contribution per employee – thus total contributions per month per employee:

Dispute Resolution Levy Total: R6.14 per month

Note that the dispute resolution levy is also payable by administration staff.

Changes to the Official Interest Rate for Fringe Benefits

The Official Interest Rate for calculating Fringe Benefits decreased by 0.25 % effective 1st August 2017.

Where an employer gives an employee a loan that is less than the official interest rate or interest free, the difference between the two must be taxed as a taxable Fringe Benefit. This Fringe Benefit should be processed via the payroll and reported on the Employees IRP5 against SARS Code 3801.

The Official Interest Rate is defined in the Seventh Schedule as the rate of interest that is equal to the Repo Rate, plus 100 basis points (1%).

The repo rate was decreased from 7% to 6.75% on the 21st of July 2017, which means the deemed interest rate dropped from 8% to 7.75% effective 1st August 2017.

Temporary Workers Ruling – Assign Case – Impact of Appeal on Employers

In our July edition, we talked about the recent Assign Case in which the Labour Appeals Court concluded labour broker supplied temporary workers who worked for an employer (and earned below the BCEA threshold) were effectively employees of that employer and not dual employed with their labour broker.

The case has been appealed to the Constitutional Court.

The implication for employers is that the practical situation reverts back to the treatment of these temporary workers as being “dual” employees of the labour broker and the client until the Constitutional Court rules on the matter.

Postponement of Annuitisation Requirement for Provident Funds to March 2019

In 2015 amendments were made to the Act regarding the tax treatment of provident funds in order to enhance preservation of retirement fund interests during retirement. As a result, provident funds will be treated like pension and retirement annuity funds and will be required to annuitise benefits. This implies that on retirement, members of the provident fund will be permitted to take up to a third of the retirement benefit as lump sum and annuitise at least two thirds. However, this will only be applicable for contributions made to a provident fund after the implementation date. All contributions made before the implementation date, and growth on those contributions, may still be taken as a lump sum on retirement.

The above-mentioned amendments were supposed to come into effect on 1 March 2016. Government came under pressure from the unions regarding this proposal and in February 2016 postponed the annuitisation requirements for provident funds for two years until 1 March 2018. The reasoning behind this postponement was to provide sufficient time for the Minister of Finance to consult with the various interested parties. These included the National Economic Development and Labour Council (NEDLAC), who would be consulted regarding the annuitisation requirements for provident funds after the publication of the comprehensive policy document on social security. The Minister of Finance would also need to report back to Parliament on the outcome of those consultations no later than 31 August 2017.

Several changes have taken place since the postponement of these amendments and the discussions on the comprehensive paper on social security are still underway in NEDLAC. In view of the above it is proposed that the provisions relating to the annuitisation requirements for provident funds be postponed for 1 year from 1 March 2018 to 1 March 2019.

The proposed amendments will come into effect on 1 March 2019 and apply in respect of years of assessment commencing on or after that date.

2017 Draft Taxation Laws Amendment Bill

On 19 July 2017, National Treasury published the following amending legislation:
1. Draft Taxation Laws Amendment Bill (TLAB)
2. Draft Tax Administration Laws Amendment Bill (TALAB)

While the draft legislation still needs to be approved, the following items in the legislation are most relevant to payrolls.

TLAB Main Proposals

1. Bargaining Councils PAYE non-compliance.
Some bargaining councils have for many years not withheld PAYE from members for holiday, Sick leave and end-of-year payments. It is proposed that a levy is introduced as form of limited recovery of the taxes owing. At this stage, the impact on payrolls is uncertain, although there is a strong likelihood that payrolls will have to assist non-compliant councils with calculations going back over 5 years.

2. Introducing further changes to the anti-avoidance rules for certain share schemes, mainly to do with trusts.

3. Removing the 183/60 day tax exemption for South African tax residents earning income from services provided outside of the borders of South Africa.
The purpose of this change is to prevent double non-taxation, but it is certainly not going to be popular.

4. Increasing the tax exemption threshold for bursaries granted in respect of the education of those employees (or their relatives) with disabilities.
Various forms of tax relief for different circumstances are proposed.

5. Clarifying the rules relating to the taxation of employee-based share schemes, and introducing more anti-avoidance rules.

6. Making a number of changes to the taxation rules regarding retirements funds, including the postponement of the annuitisation requirement for provident fun payouts to 1 March 2019.

7. Clarifying that the hours used for the ‘160-hour’ determination for section 4(1)(b)(ii) of the Employment Tax Incentive Act are the hours defined as “ordinary hours” by the Basic Conditions of Employment Act (which would then exclude ‘premium’ hours).

TALAB Main Proposals

1. Spreading the R350 000 pa monetary cap that limits the deduction allowed in respect of contributions to retirement funds over 12 months.

2. Including only the portion of the travel reimbursement that is calculated at a rate per kilometre that exceeds the prescribed rate per kilometre in remuneration.

Note, the 2017 budget proposal to reduce or remove medical tax credits (as discussed in the recent NHI White paper) to help fund the National Health Insurance project, has not been taken forward in the draft Amendment Bills.

Recent SARS and Department of Labour Amendments

For interest, we have included on our website the following documents from SARS and the Department of Labour for you to access:

Agreement summarising the implications of the National Minimum Wage (published 27 February 2017)

Interpretation Note 16 – Exemption on Foreign Employment Income

Interpretation Note 34Exemption for Remuneration of Officers or Crew Members on board Ships
This interpretation note needs to be looked at closely. It creates a challenge in looking only at “this tax year” instead of a broader test of “any 12 months” leading to an inconsistency where employers will most likely have to deduct PAYE, SDL and UIF for employees until they can show these employees have been out of the country for more than 183 days. They cannot however then refund the PAYE (strictly prohibited) nor request refunds of SDL and UIF leading to potential unhappiness amongst employees who will need to reclaim PAYE on assessment.