Employment figures were largely flat during April, according to Adcorp Labour Economist Loane Sharp in the latest Adcorp Employment Index with the economy shedding 1,163 jobs during the month.

The biggest losses were in temporary (excluding agency) work, which lost 2,056 jobs during the month, and permanent work, which lost 1,018 jobs during the month. Only the informal sector created jobs, numbering 1,911 for the month. The most significant job losses were observed in manufacturing (7,000) and the wholesale & retail trade (4,000).

In the wake of the recent adoption of changes to the Labour Relations and Employment Equity Acts by parliament, Mr Sharp noted that, although new Labour Relations and Employment Equity acts have been adopted by parliament, implementation dates have not been set. There is a common expectation in the labour industry that when the acts are rolled out, this will be done in a reasonable, phased approach.

There are two notable changes to the current legislation. Firstly, under an amended Labour Relations Act (LRA), temporary employment agencies and their clients will become jointly and severally liable for unfair labour practices. Currently only agencies are liable for adverse awards in unfair labour practice cases. Secondly, under an amended Employment Equity Act (EEA), remuneration for non-permanent employees will be subject to parity with permanent employees. Currently there are no special regulations regarding pay rate differentials between any categories of employees.

Mr Sharp pointed out:

• There are currently around one million agency workers in South Africa. The agency workforce is highly fragmented with the largest five companies accounting for only 26% of the national agency workforce. There are 2,320 registered agencies and the “typical” agency deploys 209 workers and has an internal staff of seven employees.
• Among the five largest agencies, a relatively small number of blue-chip clients (0.04% of all registered business enterprises) account for 90.1% of the large agencies’ workforces. Combined with the fact that listed employers account for just 1.4 million workers (9.3%) of the total national workforce of 15 million people, small employment agencies’ workforces are highly dispersed.
• The Department of Labour’s (DOL’s) Inspections and Enforcement Services unit conducts 130,000 workplace inspections a year, mostly related to occupational health and safety. Using its existing infrastructure, the DOL inspects only 2.4% of business premises per year. There are fewer than 10 inspectors available nationally to scrutinise the activities of 4,272 employment agency branches, compared to the number of inspectors required of 13,160, assuming two inspections per inspector per client site and branch office per year.

Bearing these facts in mind, he added that significant inspection and enforcement problems can be expected: “The unintended consequence will be that large, blue-chip employers and their largely listed employment agencies representing 8.4% of national employment will face high levels of scrutiny, whereas small and mid-sized employers representing 91.6% of the national workforce will evade scrutiny altogether.”

“Bearing in mind that the government’s intention was to purge the small independent agencies and regularise the large and largely compliant agencies, industry statistics suggest that the exact opposite will occur,” he added.

Adcorp calculates that the cost to equalise permanent and agency workers’ wages on a narrow interpretation of the EEA will be ZAR 78.2 billion (USD 7.5 billion) per annum – a +69.2% increase in the current annual payroll of agency workers.

Apart from the roughly one million agency workers in South Africa, there are 2.9 million non-agency temporary workers, i.e. temporary workers engaged by employers directly without the use of intermediaries. The cost to equalise these workers’ wages will be ZAR 154.9 billion (USD 14.9 billion) – an increase of 47.4%. In total, the EEA as envisaged by the government will add ZAR 233.1 billion (USD 22.5 billion) (or +13.8%) to the total national payroll.

With these sorts of costs involved, it is anticipated that employers will find innovative ways to avoid these costs. For example, it seems highly probable that all permanent workers within a particular pay-grade will be dismissed and new employees will be hired as fixed-term contractors. The employer will incur the once-off cost of severance for the dismissed permanent workers (being one week’s wages for each completed year of service) and a once-off cost of training for the newly hired workers (being roughly 6% of an employee’s cost-to-company remuneration for a 3-week training regimen), and the employer will in this way substantially reduce his long-term employment costs.