Many employers in South Africa use labour brokers for temporary employment services (TES). Often, they continue this practice because they don’t feel able to manage the volume of workers, together with the HR commitment (some employers may only have 100-odd permanent staff, but engage 1000 temporary workers as an example). Following the Constitutional Court ruling in 2018 (that a worker placed by a labour broker becomes the company’s employee after three months), many organisations are afraid they will not be able to manage the additional workers internally, and the additional cost will put them out of business. This doesn’t have to be the case however – there are alternatives available that should result in minimal extra work for you and marginal to less cost, depending on how you approach the transition.
What does a labour broker do?
A labour broker performs a number of tasks for an employer including:
- Recruiting and contracting workers
- Managing these workers (the client would manage them operationally)
- Run payrolls and pay the workers
- Manage relationships with third parties including unions/bargaining councils
- Manage IR issues and terminate the workers’ employment
Some potential options to consider
Following the ConCourt ruling, employers can choose one of the following:
- Do nothing and face significant financial risk (definitely not recommended!)
- Engage TES workers directly and manage them internally
- Engage TES workers directly and outsource the processes performed by the labour broker previously
Comparison of options
The table below illustrates the comparison between trying to manage TES workers internally vs. outsourcing. We certainly don’t look at the option of doing nothing because it doesn’t make any sense financially or from a risk perspective!
Cost comparison
As cost is a significant factor, we have also included a comparison below between labour broking services, managing TES workers internally and outsourcing. For the comparison, we have assumed a company with 200 TES workers and a labour broking fee of between 10% and 15% of payroll.
For a more detailed overview the table below illustrates the key assumptions and working for each element.
The above table does not consider any savings through efficiency gains by managing the workers better. Previously there would have been no incentive to upskill.
It is clear that outsourcing is the best option to better manage your risk and financial exposure if you currently use TES workers. However, we recommend you undertake a review of your business and individual circumstances before you make a decision. If managed well, the transition has the potential to improve your business.
We can help you with a detailed review of your business, as well as any TES labour advice. Chat to one of the team today!