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80% of labour broker workers should be deemed permanent - report

Aug 26 2018 07:42
Dewald Van Rensburg

An astonishing 80% of labour broker workers were on contracts with a duration of more than three months when the contentious “deeming” provision in the Labour Relations Act came into force in 2015.

After a watershed Constitutional Court ruling last month confirmed that this provision makes the client the “sole” employer, the future of labour brokering is once again in question.

A paper presented at the annual African Review of Economics and Finance conference, held at Wits Business School this week, uses an SA Revenue Service (SARS) database to investigate the controversial sector’s “wage penalty”.

The 474 161 workers who show up in income tax records as working for labour brokers earn, on average, 30% less than workers who are employed directly, according to the paper’s authors Aalia Cassim and Daniela Casale.

This wage penalty consists almost entirely of the lack of benefits – such as medical aid or provident funds – for labour broker workers, Cassim said during a presentation on the paper. If you exclude benefits, the difference in pay falls to 6%, she said.

The SARS database is a new resource for South African economists that was born out of National Treasury’s initial inability to measure the effects of the youth wage subsidy, introduced in 2014.

Among other things, it provides insights into labour brokering because labour brokers are identified in the SARS database in order to avoid double-taxing the workers they place at other companies.

There have been many conflicting estimates of the size of the labour broker sector, with industry sources giving numbers as divergent as 1 million and 600 000.

The SARS data, which excludes anyone earning less than R2 000 a month, shows about 475 000 brokered workers in 2014, after the data was “cleaned” to remove apparent errors, dropping to about 450 000 in 2015.

This seems to show that there had been a sharp reaction to the deeming provision, despite its legal interpretation having been fought in the courts up until July this year.

Currently, available numbers for 2011 to 2015 show strong growth in labour brokering – and then a sharp reversal in 2015.

Cassim said the 2016 SARS data would soon be available, adding that it might reflect more contraction in labour brokering.

Considering the massive extent of long labour brokering contracts shown in the data, it is surprising how small the impact on the sector has been.

“It is not the drop it should have been,” said Cassim.

According to her paper, 80% of labour broker workers were on contracts longer than the three months that trigger a deeming process.

Those with contracts longer than a year made up 26% of all broker workers.

The deeming provision reads that a broker worker is deemed an employee of the client after three months.

This only applies to workers earning less than R205 000 a year and excludes workers on genuinely temporary jobs such as construction projects.

Wage penalty

Cassim said the SARS data did not make perfect like-for-like comparisons possible between broker workers and normal workers because, among other things, the data only reflected monthly earnings.

The effect of labour broker workers earning less due to being casual and working fewer hours than normal, cannot be discerned.

Likewise, the data set does not allow for the comparison of education levels.

Tellingly, there is a 30% gap in the pay of broker workers and normal workers that falls to almost nothing when benefits are excluded.

This fits the well-known complaint that brokered workers seldom have pensions or medical benefits.

City Press has recently reported on the outcomes of battles to get “deemed” at workplaces such as the Springs factory of cereal maker Kellogg’s, and Simba’s Isando facility.

In both cases, the broker workers got deemed and saw a massive increase in earnings. In both cases, the company then retrenched a large proportion of them.

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labour brokering  |  labour


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