Fixed-term contracts can be a valuable tool for employers, but new legislation is tightening up their use, and may result in sudden additions to your permanent workforce.
With business needs constantly changing, scarcity of skills and a need to complete specific contracts for clients, there are some compelling reasons for hiring staff on fixed-term contracts. For smaller businesses in particular, the reduction in expenses, benefits and cost-to-company overheads is attractive, especially when it comes to medical aid and pension contributions, which can place a big strain on the SME.
Unfortunately, there have been instances where employers use a fixed-term contract as a means to evade their statutory obligations in terms of the Basic Conditions of Employment Act, the Labour Relations Act and the Employment Equity Act.
On 1 January 2015, the Labour Relations Amendment Act (No.6 of 2014) (LRAA) took effect, and South African businesses now have to comply with new obligations. One of the key features relates to fixed-term contract employees, who will now enjoy far greater protection than was available to them in the past, although some smaller and startup companies may be exempt. The law also relates only to those contractors earning R205 433.30 or less per year.
The amendments limit the use of fixed-term contracts, and employers must now be able to justify fixing the duration of an employment contract. Failure to do so will result in the employees becoming permanent. Once this occurs, the employment relationship may only be terminated by the employee’s resignation, death, or dismissal.
Implications for employers
“If you look at the law, there’s now no difference between fixed-term and permanent employees,” says Anja van Beek, HR director at Sage VIP/Sage AAMEA. “A fixed-term contract can now only be in place for longer than six months if the contractor is replacing an employee who is temporarily absent from work. Otherwise, when a fixed-term contract of employment is renewed, the employee has a right to expect that the employer will continue to renew the contract, and to believe they’re in fact permanently employed.”
In terms of the new obligations, an employee who is employed on a fixed term basis for longer than six months for a justifiable reason must be treated in the same way as a permanent employee doing the same or similar work, unless there’s an acceptable reason for different treatment.
Van Beek believes that a positive, healthy organisational culture is built on permanent employees. “For the individuals themselves, the benefits are better, as is job security. The levels of loyalty and commitment to the organisation are naturally higher, which also results in increased productivity. Our success is linked to the loyalty of our people.”
When contract workers work best
James McKerrell, CEO of CRS Technologies, has a different take. “Contract workers are an important part of our business because they allow us to ring-fence the costs of a project. The output required is defined, as is the time period. The motivation to deliver is therefore high. Contract workers often have diverse work experience which can contribute a lot to the success of a project.”
McKerrell says it’s important to ensure that a contractor has the skills the organisation is seeking, backed by a good reputation in the industry and a reasonable number of good references.
“Contractors not only give a business access to skills that are hard to come by, but they also enable a fair amount of organisational flexibility, so that you can increase and decrease staff numbers based on business needs. There’s also no expensive and lengthy recruitment process to go through as you can generally find what you need in a matter of hours.”
Importantly, specifying time periods is now non-negotiable. Employers must bear in mind that as part of the new obligations, contract workers have to be engaged to work exclusively on a genuine and specific project that has a limited or defined duration, a requirement wellsuited to the needs of IT organisations that focus on software development, for example.
Although the majority of employees in the IT sector are permanent, according to ITWeb’s 2014 IT Salary Survey, with contractors making up just 12 percent of the sample and earning only four percent more than those permanently employed, the pros of fixed-term contracts remain attractive to a number of businesses and employees.
Opting for a permanent employee or a contractor ultimately comes down to finding people with the right skills and the right fit for the organisation. With the new LRAA likely to have implications for employers in the technology sector who link employment contracts to specific projects, it’s imperative that employers in the channel understand the regulations and how these relate to existing fixed-term contracts of employment.
Pull quote:
“Contractors not only give a business access to skills that are hard to come by, but they also enable a fair amount of organisational flexibility.” James McKerrell, CRS Technologies
Sidebox:
Regulating contract work
How the Labour Relations Amendment Act affects employees on fixed term contracts.
• Protection for contract workers applies only to employees earning R205 433.30 or less per year.
• Fixed-term employees, employed for more than three months, are deemed to be employed indefinitely unless the employer can demonstrate a justifiable reason for employing them on a fixed-term basis. The reasons can include: project work, student or graduate internships, seasonal work, non-citizens who have been granted a work permit for a defined period, replacement of another employee who is temporarily absent, temporary increases in work volume, public works or job creation schemes, positions funded by external sources for limited periods, and retirement age being reached.
• Employees employed for more than three months may not be treated less favourably than permanent employees performing the same or similar work, unless there is a justifiable reason for doing so. • Fixed-term employees employed for more than 24 months must receive severance payment equivalent to one week’s remuneration for every completed year of service, on the expiry of their contract.
• The provisions do not apply to an employer who employs less than ten people, nor does it apply to an employer who employs less than 50 employees and whose business has been in operation for less than two years.