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The employment tax incentive is translating into a cash windfall for the country’s much-maligned labour brokers.
Workforce Holdings, South Africa’s second-largest labour broker group, attributed virtually all its profit in 2014 to the subsidy.
The company claimed R53.4 million under the employment tax incentive last year – and declared a profit before tax for the year of R51.2 million, according to its recently released annual report.
It was the most profitable year the company has had in a decade – entirely due to the subsidy.
When Workforce published a trading statement on the JSE news service alerting shareholders to its jump in profitability, the stagnant share price shot up from 90c to R1.60.
Workforce is a tightly held company. Its founder, Ronny Katz, owns about 64% of the shares, which means he technically just got R90 million richer.
This timely lifeline has been thrown at the sector just as a new amendment to South Africa’s main labour law, the Labour Relations Act, is allegedly causing massive job losses among brokered workers.
The alarm bells are being sounded by Loane Sharp, formerly the in-house statistician for South Africa’s largest labour broker, Adcorp, and now working under the auspices of the Free Market Foundation, a think-tank.
Sharp is claiming the new regime has already cost 245 000 jobs. In effect, he is saying a quarter of the labour-brokering industry has simply disappeared.
He insists this is after any countervailing shifts to permanent employment (see sidebar).
The amendment to the Labour Relations Act now “deems” a brokered worker to be a normal employee after three months and bans indefinite “temporary” employment, unless there is some solid justification for it.
The Confederation of Associations in the Private Employment Sector is currently applying to court for a declaratory judgment on what exactly this means.
Before the new law came into effect, Sharp had predicted a much rosier outcome.
The new requirements should have been relatively easy to address for a big broker, Sharp said.
Big brokers were actually pleased with the amendment and expected the net effect to be positive for them as smaller competitors get driven out.
“What they did not anticipate was the shock among clients,” says Sharp.
What has happened instead is, according to him, a “terrible kneejerk reaction”.
Lawrence Diamond, the CEO of Workforce Holdings, is still relatively upbeat about the new regime. He sees it achieving what Sharp initially predicted – a concentration of the industry that would probably benefit Workforce.
Workforce expects to lose some business as clients are forced to “permatise” workers, but thus far Workforce hasn’t seen anything as dramatic as the wholesale termination of contracts Sharp is flagging, says Diamond.
Workforce has been going through its books with clients to identify the contracts that are immune to the new law and make sure the rest are “justifiable” under it.
The trick seems to be moving into “solutions” that involve more than just providing labour, but venturing into the world of outsourcing.
“This is one of the solutions,” says Diamond. “The legislation challenges us to validate our value proposition. Sometimes you need a catalyst,” he adds
