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| Editor's Note |
After a fascinating municipal elections, we all wait to see what impact the new political landscape will have on business in the major metropolitan areas.
We would like to thank all those who attended the HRTorQue MacGregor Erasmus breakfast held on Wednesday, 10 August in Durban.
One of the themes at the breakfast was Richard Erasmus talking about the impact of Labour Relations Act changes on labour brokers. We have continued this theme in our newsletter by firstly questioning in what situations employers might still wish to use labour brokers; and further providing an alternative solution to employers should they be considering moving away from labour brokers.
We highlight a very poor communication effort by SARS in recently appointing debt collectors to recover unpaid taxes without telling the public they are doing so.
Then, a very interesting piece on recent experience of Department of Labour audits at some of our clients - beware people, this is scary!
Finally, given the importance of equal pay for equal work, we have re-produced an article form Werksmans Attorneys looking at whether length of service can be a differentiating factor in pay levels.
As usual, should you require any further detail on any of these topics, please feel free to contact us.
Personal tax filing season started on the 1 July. If you would like our help preparing your return, please read the relevant section of this newsletter explaining how much it will cost and what you need to do.
We do offer a referral scheme for new clients sent in our direction so if you know of anyone looking for outsourced payroll services then please let us know*.
*Terms and conditions apply. |
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| Table of Contents |
1. Labour brokers in business today
2. Option for moving away from a labour broker
3. SARS - poor to non-existent communication in appointing debt collectors
4. Recent audits by the Department of Labour
5. Is length of service reason to pay different salaries?
6. Contact HRTorQue |
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| 1. Labour brokers in business today |
| Author: Jonathan Aitken |
Following the changes to the Labour Relations Act and the inclusion of s198 there are few obvious reasons for continuing to use a labour broker in South Africa unless:
• the broker provides a resource for a short term need (< 3 months); or
• the broker has a pool of specialised, trained individuals to meet a pressing business need
This differs from the view a few years back when businesses argued for the use of labour brokers for the following additional reasons:
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the potential to decrease costs by not offering a labour broker's workers the same benefits as permanent employees; or |
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the use of labour brokers to reduce the time and cost spent on hiring managers or HR representatives to supervise and control the relevant workers |
These arguments no longer apply.
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Labour brokers cannot decrease your cost base - if you are compliant with "equal pay for equal work" legislation it is not practically possible for a labour broker to be cheaper than hiring these same employees directly as you have to add on the labour broker's margin. The only exception to this is if the labour broker provides trained, specialised individuals able to offer operational efficiencies which you cannot do yourself. |
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The fallacy of less supervision - while not having employees on your books might have given you a false comfort that you didn't need to manage them, recent court cases deeming the client to also be the employer of labour broker workers means you no longer have this luxury. Now, you as the employer will be facing any claim brought by a labour broker employee so you face even more risk if you don't manage them yourself. It would be a crazy position to be in if you blindly let a third party manage a situation where you ultimately face the bill. |
It is little surprise then that employers who have traditionally used labour brokers are having to re-think their position and many are looking to move their labour broker supplied workers in-house. |
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| 2. Option for moving away from a labour broker |
| Author: Jonathan Aitken |
More recently we have had clients approaching us or our partners acknowledging they need to move away from their labour broker relationship because of the increased risk they face. However, they have been concerned that as their labour broking staff make up a material part of their workforce that they will not have the resources or systems to handle the additional burden. In some cases this is complicated further by the client not having structures and policies to suit blue collar workers traditionally sourced through labour brokers.
While it may be daunting for an HR and/or Finance Department to think about taking on hundreds of new employees overnight in practice there are various options available to manage the transition process.
Key amongst these would be looking to a company like HRTorQue to assist. HRTorQue can provide a full service (with a likely cost saving against labour broker charges) for the transition to bring employees in-house including:
• A project manager to support the transition and assist with communication;
• Contracts of employment;
• Policies and procedures;
• Outsourced payroll including all net pay and third party payments;
• HR professionals to assist in negotiations with unions or employee representatives;
With the critical short term risk alleviated the client has the luxury of taking their time to decide on their longer term structure. HRTorQue can even assist with the strategic review to help the client better understand their long term options and costs. |
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| 3. SARS - poor or non-existent communication in appointing debt collectors |
| Author: Jonathan Aitken |
At a meeting with some senior SARS management in July a question was raised by a payroll specialist on whether they were aware of the public being approached by debt collectors apparently appointed by SARS to collect taxes. SARS had no comment at the time.
Then later in July a number of media outlets ran reports noting SARS had appointed the following three companies as debt collectors:
• NDS Credit Management
• CSS Credit Solutions
• Lekgotla Trifecta Collections
Interestingly, it is reported in one of the article that SARS made an announcement about this in late 2015. We have looked on SARS website and we cannot find any media release about this announcement. In addition, in searching for the above company names, there is no mention on the website either.
So why do we care?
We won't go into the issue of whether appointing debt collectors is the best use of taxpayers' money.
Instead, SARS themselves puts it perfectly (ironically on their website) when they warn against tax scams (http://www.sars.gov.za/Media/MediaReleases/Pages/6-June-2016---SARS-warns-against-tax-scams.aspx) and people posing as tax agents. We live in a society where scams are rife and here SARS have invited three new foxes into the chicken coop and three new identities for fraudsters to emulate.
If SARS really wishes this to work effectively then they should issue clear communications to all impacted parties setting out the names of the collectors, how they can be recognised and more importantly:
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The information the collectors have been provided about the taxpayer; |
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The information the collectors will never ask from the tax payer (bank details etc.); |
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Guidance that when in doubt the tax payer should always phone SARS and should never give away personal details over the phone when called by a collector; and |
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Clear instructions that for safety all payments should be made directly to SARS and never to a collector (no clear audit trail); |
As an aside, experience in the UK with HMRC using debt collectors is often there is a disconnect between the tax authority's and the collector's records. The collector often pushes for repayment of debts already paid to SARS. The onus is often on the taxpayer to then try and recover the overpayment from the authorities which can take some time. Not ideal in a South African context when refunds generally take a while to happen. |
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| 4. Lessons from Department of Labour audits |
| Author: Nicky Hardwick / Jonathan Aitken |
In the past twelve months we have repeatedly warned clients about the aggressive audits and fines being implemented by the Department of Labour for non-compliance with the Employment Equity Act. The minimum fine is R1.5 million and the department has issued Notices of Motion to get the fines imposed by the courts.
The fines have generally been levied where companies have not complied with material aspects of the Act e.g. not filing their returns or not having an operating Employment Equity Committee. However, this has now changed and fines are now being levied for less material items and in some instances for subjective views on the success of the employer's plan as the examples below show:
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An employer was recently fined for not constituting their Employment Equity Committee in the prescribed manner. Instead of having open elections the employer approached employees to become members of the committee and obtained consensus from the workforce. The members met the diversity requirements, but the Department of Labour fined the employer because of the process followed; |
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An employer was issued a fine for not making "reasonable progress" on their submitted plan despite showing an 18% improvement on previously reported numbers; |
In addition, employers face a bit of a lottery depending on the inspector running the audit:
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An employer was informed they were not compliant because they had said in their plan they would have 592 staff members, but in reality now had an extra 9 at 601 (Editor: don't ask what the response was when it was asked whether they should terminate the employment of the extra 9 to get the numbers exact) |
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One inspector known to us has a recorded >90% incidence of fining companies they audit |
We can only stress to employers to please get their ducks in a row and make sure their employment equity files are in good order. We have had good experiences with the HRTorQue's product where there is clear documentation of all steps taken, communication and analysis. |
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| 5. Is length of service reason to pay different salaries? |
| Source: Werksmans Attorneys (By Jacques Van Wyk, Director, Andre van Heerden, Senior Associate and Staci Jacobs, Candidate Attorney, Werksmans Attorneys) |
Issue
Whether length of service is a justifiable reason for paying employees performing the same functions differently.
Court's decision
In Pioneer Foods (Pty) Ltd v Workers Against Regression (WAR) & others (Case no: C 687/15, 19 April 2016), the Labour Court considered the interpretation of section 6(4) of the Employment Equity Act 55 of 1998, as well as the newly enacted section 10(8).
This matter arose as an appeal against an arbitration award in which the Commissioner upheld a claim of unfair discrimination brought by the First Respondent, Workers Against Regression ("WAR"). At the CCMA, the Commissioner held that the fact that Pioneer Foods (the Applicant) paid, for an initial period of two years, their newly appointed employees 80% of the rate paid to their longer serving employees who performed the same work, amounted to unfair discrimination.
In evaluating WAR's claim the Court noted that in order to establish 'pay discrimination' it is necessary for a complainant to show that:
1. The work performed by the complainant is equal or of equal value to that of a more highly remunerated comparator; and
2. Such difference in pay is based on a prohibited ground of discrimination.
On appeal the first hurdle was establishing the ground on which the alleged discrimination was based. WAR had not based its claim on any of the listed grounds and therefore the Court accepted that the claim was based on an unlisted or arbitrary ground (as a result the onus was on WAR to prove such claim). However, at the CCMA, WAR conceded to the Commissioner that they did not know on which unlisted arbitrary ground they relied. It was only in their heads of argument in Court that WAR alleged, for the first time, that the grounds upon which they based their discrimination claim was the fact that newly appointed employees were being paid less merely because they had started working later than their long-serving colleagues.
The Court held that "nothing in the EEA precludes an employer from adopting and applying a rule in terms of which newly appointed employees start at a rate lower than existing, long-serving employees." The Court held further that the Code of Good Practice on Equal Pay / Remuneration for Work of Equal Value ("Code") expressly recognises seniority or length of service as a consideration that could justify differentiation in remuneration, as do the regulations to the EEA.
As a result, the Court held that in order for 'mere differentiation' to amount to discrimination the reason for the differentiation must be irrational. In the instance where one relies on an 'arbitrary ground' one must be able to show, objectively, that the arbitrary ground is 'based on attributes and characteristics which have the potential to impair the fundamental human dignity of persons as human beings or to affect them in a comparably serious manner'. If one were to adopt a wider interpretation of the term 'arbitrary ground' arising out of the amendment to the EEA then one must show that the differentiation was capricious or for no good reason (i.e, irrational). Even if discrimination, however, is found to be present it must nonetheless be found that such discrimination is also 'unfair'.
On the facts the Court found that there was in fact a rational connection between the difference in remuneration and the length of service, i.e. to reward long service and loyalty of existing employees. Therefore the differentiation was not arbitrary and, as a result was not discriminatory. However, the Court went further and noted that even if the differentiation were found to be arbitrary, and discriminatory, it was in any event not unfair.
Importance of this case
This case advances the view that differentiation in remuneration of people performing the same work on the basis of length of service does not if itself amount to arbitrary or unfair discrimination. The Code of Good Practice specifically refers to the practice of distinguishing between employees' length of service when determining appropriate remuneration. |
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| 6. Contact HRTorQue |
Head Office (Durban)
Phone: 031 564 1155 • Email: [email protected] • Website: www.hrtorque.co.za
Address: 163 Umhlanga Rocks Drive, Durban North, KwaZulu-Natal
Johannesburg Office
Ground Floor, West Wing, 6 Kikuyu Road, Sunninghill, 2191 |
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