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The Tipping Point: SA staffing industry on verge of drastic changes

Posted By APSO, Thursday, 06 June 2013
Updated: Thursday, 06 June 2013

This article first appeared in the Global Recruiter magazine in June 2012

The South African staffing sector is facing many changes, not least of which is the impending legislation being driven by Government to curtail the use of Temporary Employment Services (TES) and to limit the impact of flexibility in the workplace. Unfortunately the political will to push this legislation largely, it appears, to appease political allies within the trade union movement and achieve ideological goals, goes against the drastic state of a labour market that is characterised by frightening levels of unemployment, education system failures and struggling, disillusioned businesses.

Mission Critical: Reduce unemployment

At the heart of South Africa’s many problems lies the ever-increasing scourge of unemployment. All of Government’s plans, most especially the National Development Plan, released in mid 2010, focus on the need to create millions of jobs in the next decade. This will not be possible if the proposed labour legislation amendments were to be passed.

South Africa already struggles to compete favourably with our African neighbours and BRIC counterparts in respect to education standards, labour relations and productivity, and unless we create an environment that businesses – both local and International – believe is conducive to economic success, we will not stimulate the economy and attract the much-needed foreign direct investment required to have a real impact on job creation.

According to the Labour Market Performance Report for First Quarter 2012 released by the University of Cape Town’s Development Policy Research Unit, the initial labour market recovery observed in 2011 is faltering. The unemployment rate, calculated on the expanded definition to include those who are disillusioned as well as those actively seeking work, stands at 33.8%, more than seven percentage points higher than the pre-recession low of 26.6% measured in the fourth quarter of 2008.

Youth: A ticking time bomb

Throughout the world youth unemployment is a critical factor and none more so than in South Africa where high levels of unemployment are being experienced amongst the youth. The report sets unemployment rates amongst 15 – 24 year olds at 62.4%, nearly double the national average and 25% higher than the rate for 25 – 34 year olds. 

The education system is failing desperately and many young people are exiting the secondary education system with Matric certificates yet still functionally illiterate. Skills development in the workplace therefore becomes essential and adds a significant burden, both cost-wise and administratively to employers, who would rather engage with a more mature worker.

The economic slowdown and existing draconian labour legislation has resulted in the inability of the South African labour market to generate sufficient numbers of jobs, especially for younger, less experienced workers. Employers are simply too afraid to "take a chance” on a younger worker, for fear that it does not work out.

Curtailing the use of TES will have a direct negative effect on access to employment for young people as the PrEA industry is proven to be a stepping stone to gather work experience, access additional skills and training and to secure permanent employment.

Enforcement is the real issue, not lack of legislation

South Africa is recognised to have some of the most rigid labour legislation in the world. The 2011 World Employment Forum ranks South Africa 138th (out of 139 countries) in both Flexibility of Wage Determination and Cooperation in labour-employer relations. We also rank worst, 139th, in respect to Hiring and Firing Practices. This clearly outlines the fact that our existing regulations are already too stringent in this economic climate.

The real issue however is in relation to compliance and enforcement. Currently, those companies who operate outside of the legislation, are not being investigated and punished and there is no real effective deterrent for non-compliance. Extensive research, conducted globally by the Boston Consulting Group, proves that over-regulation of any labour market – established or emerging - leads to a direct increase in the number of non-compliant "underground” operators and a decrease in employment in the formal sector where the highest levels of compliance exist.

Organised business in South Africa is highly concerned that attempts to further regulate the labour market, resulting in over-regulation, will only serve to increase the cost burden on the already compliant, thereby increasing the non-compliant element. This will have a severe impact on the number and quality of the jobs in South Africa. As costs increase, compliant businesses will simply seek opportunities to reduce the number of people employed through automation and mechanisation, thereby resulting in the loss of more decent jobs.

The "f-word” - Flexibility

Government and unions in South Africa, and elsewhere in the world, are struggling to come to terms with the changing world of work and the increasing use of flexibility within the labour market. Gone are the days that an individual was employed ‘for life’ at a single employer with full benefits and a gold watch on retirement. Chronic skills shortages, increasing global competition and improving technology have created a labour market that favours flexible, project-based employment. This more flexible labour model need not mean precarious work.

"Flexicurity”, a concept coined in Europe, promotes the balance between flexibility and security for the employee through effective regulation and the availability of suitable social protection schemes.Companies, in order to remain competitive, are choosing to outsource their non-core functions and to bring specific skills, for specific projects, in "just-in-time”. The nature of these employment relationships varies but is most often defined as "a-typical”.

To effectively manage the sourcing, recruiting, assessing and administering of flexible labour, businesses have turned to specialists, in the form of Temporary Employment Services (TES) companies. And South Africa is no different.PrEA is a significant contributor to the South African economy.

The Private Employment Agency Sector (PrEA), including Temporary Employment Services (TES), is a significant contributor to the South African economy. In addition to facilitating smooth transitions for workers between jobs, and assisting employer companies to remain competitive in tough economic times, it is also one of the largest contributors to skills development in the country.

A snapshot of the South African PrEA sector:

  • Introduced 5.4 million people to the world of work since 2000
  • Gateway to the world of work: Profile of work seekers/candidates:

o   Never previously employed: 57%

o   Youth aged 18-35: 83%

o   Previously disadvantaged: 93%

  • Average of 994 000 people deployed (via TES) on a daily basis
  • Of those initially employed as a temp, each year significant numbers are permanently deployed

o   30% within 1 year

o   42% within 3 years

  • One of the largest contributors to skills development – R415 million paid over in skills levies
  • Nearly 20 000 registered learnerships facilitated (30% of SETA total)

Proposed legislation threatens job creation goals

The proposed changes to the legislation, in particular the curtailment of the use of a-typical employees (temporary, fixed term and part-time) by limiting the time of employment to 6 months, before being considered to have all the rights associated with permanent employment, including access to benefits, will have dire consequences on the labour market.

It is estimated that in excess of 3 million people are employed in a-typical arrangements in South Africa and the local labour market is simply not able to absorb all of these. Further, the poor drafting of the proposed legislation has already led to confusion in the marketplace with different lawyers interpreting the drafts differently. This uncertainty, rather than specific legislative amendments, is more likely to cause a loss of jobs as companies battle to come to terms with administering it within their organisations.

Social dialogue between Government, business and labour has unfortunately not been fruitful and many areas of disagreement still exist. Unfortunately, with the ruling party’s policy conference, leadership debate and national elections pending, it is likely that the legislation will be pushed through in the next several months.

The staffing sector, in particular will need to adapt to the new environment and whilst it will not result in an outright ban of the TES sector, higher compliance regimes, complex legislation and increasing costs will likely impact the smaller operators and cause a consolidation within the staffing sector.

Commitment to professionalisation of the PrEA sector

The industry has long advocated the need for specific regulation to govern the PrEA sector. We are committed to regulation that is fair, effectively enforced and that recognises the dynamic nature of labour markets today. At this stage the internal political wrangling within Government and its allies is likely to have a direct impact on the acceptance and implementation of the proposed legislation.

We will simply have to see what the practical impact and resulting consequences will be.The Federation of African Professional Staffing Organisations (APSO) remains committed to working with stakeholders to establish an effective regulatory framework and to support our members in coping with the changes to ensure sustainability within their businesses.

Tags:  APSO  enforcement  flexibility  labour law amendments  recruitment  South Africa  staffing  unemployment  youth 

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