What you need to know about contracts of employment

In South Africa, where labour laws are quite a handful and almost everybody needs a labour consultant to try and ensure they do things right, a contract of employment is something that you do not want to drop the ball with.

Here are some things we think your contract should have:

  • Full names and ID / Passport number of the employee, as well as contact number and address
  • Date of commencement of the contract
  • Position and obligations:
    • In this part of the contract, you need to specify what you are employing the person as and when you are governed by a Bargaining Council – you should most definitely refer to the definitions of their scheduled employees. (click here to look at our NBCRFLI-aligned contracts)
  • Probationary period:
    • This is probably the most overlooked schedule in the LRA (Schedule 8) that employers REALLY need to utilise in their contracts of employment. Instead of going the long route when you realise someone is not fit for your company – make use of the probation clause. The thing is that usually it goes both ways – the employee who doesn’t fit into your organisation also doesn’t want to be there. A probation clause saves both of you a lot of unnecessary stress.
  • Remuneration and deductions:
    • Here you need to specify what the salary / wage will be that the employee will get. Employers need to PLEASE stop promising a “nett salary of ___” it is almost impossible to achieve when taxes and UIF and levies starts to be included. The better practice is to state a package – basic salary of so much, travel allowance.. etc.
  • Working hours: this is a no-brainer, employees need to know what portions of their day they are selling to you for a salary 🙂
  • Leave:
    • It is important here to describe all the types of leave (click here for our article on annual leave) and how it works. Annual leave, sick leave, family responsibility leave, maternity leave etc. Refer to the Bargaining Council Collective Agreement where applicable and ensure that this is in line with their rules.
  • Company codes, rules and standards:
    • We find it is important to have a standard set of documents that contain the various policies and procedures at a workplace. Ensure that you do an induction for all new employees to introduce your workplace rules to everyone.
    • Do not add it into you contract of employment – but do make a very clear reference to every single policy or procedure document that you have (we have a few of these available in our HR Shop).
  • Termination:
    • The procedure to be followed and notice periods to be implemented need to be specified in your employment contract as well. Refer to the Bargaining Council rules here as well to ensure that everything is aligned to their rules.

(Should you be in the Road Freight and Logistics Industry – we have done all the work for you already!

Click here to access our online shop with all the different types of contracts and polices you could need.)

How to fix it when you are not categorizing your employees correctly

Perhaps you have taken over a payroll from someone, or when you were setting up your payroll, you were not aware of the specific industry rules.

Categorising employees correctly is VITAL to running a smooth payroll. If you do not do this right, then any or all of the following could happen:

  1. Your rates of pay could be wrong. If an employee is categorized as a higher / lower grade than what it is supposed to be you run the risk of underpaying or even overpaying him / her. This is very difficult to correct, especially if there is an overpayment that has been happening for some time.
  2. You could be applying the wrong rules to your employees. In many industries there are different sets of rules for different types of employees. If you categorise your employees incorrectly then you run the risk of non-compliance because you are looking at the wrong set of rules.
  3. Your disciplinary procedure might be unfair. Employees are graded according to their level of responsibility and authority. If you treat a lower grade employee as if his level of responsibility is higher, then it could lead to unfair labour practice.
  4. Incorrect classification of employees affect your Skills Development Reporting as well as your Employment Equity Reporting. This would be a case of non-compliance as well and could lead to fines and penalties.

So how should you approach an audit to establish whether your employees are classified correctly?

First, you should insure that you have a set of rules (recent) for the industry that you work in. Many Bargaining Councils have detailed definitions of employees and this is very handy. Then you need to look at your own in-house documents. Are there job descriptions and contracts of employment? What is being printed as a job title on the pay slips?

Set up an excel sheet with the above information in each column and do a comparison. Remember to discuss this with line managers, or operations managers in order to ensure that your understanding of a position is correct.

And lastly, if something has to change, the employee needs to be informed of this. If the change affects the employee’s pay package then consultations need to be held and you may need assistance from a labour relations consultant.

 

Bargaining Councils: A study on their effect on your payroll

5 Things Payroll Managers need to know about Bargaining Councils

 

Although many Tax Practitioners pass Bargaining Council issues onto their HR department, it is important to realise the effects these institutions have on Payrolls.

There are currently 47 registered Bargaining Councils in South Africa. Of these, 3 are Statutory Bargaining Councils, 6 are Local Government Bargaining Councils and 38 are Private Sector Bargaining Councils.

The largest Private Sector Bargaining Councils are the National Bargaining Council for the Road Freight and Logistics Industry (NBCRFLI), The Metal and Engineering Industries Bargaining Council (MEIBC), and the Motor Industry Bargaining Council (MIBCO).

Here are a few things you should know about these institutions:

1.    A Bargaining Council’s scope does not necessarily include EVERYONE on your payroll

Bargaining Councils are registered for specific industries, but if (as an example) you transport goods for gain and you need to register with the NBCRFLI (National Bargaining Council for the Road Freight and Logistics Industry) it does not mean that every single person on your payroll would be affected by this.

What you need to look for are the “scheduled employees”   for the Bargaining Council that the company falls under. These are the categories of employees that would be affected on your payroll as well.

Most payroll systems would then have a sub-screen of sorts where such employees can be flagged as registered under that specific Bargaining Council. It is important to then also ensure that the category codes used for these employees are the same as what the Bargaining Council uses to ensure that your information on the payroll is the same as what will be captured at the Bargaining Council.

The scheduled employees are usually your blue-collar employees, and they would normally also be listed on the Bargaining Council’s annual minimum wage rate table.

If you need a short course that goes into detail about this, go to our Udemy course “The Jurisdiction of the NBCRFLI” for an in-depth look at this.

 

2.    Private Bargaining Councils all have levies and funds that are payable to them on a monthly basis

As with all statutory bodies, Bargaining Councils demand certain funds and levies to be paid to them. These are deducted and contributed on your payroll and submitted to them using a prescribed form.

At the NBCRFLI, companies pay over Council levies, Wellness Fund contributions, Sick Fund contributions, Holiday Pay Bonus Fund contributions, Annual Leave Pay Fund contributions and Provident Fund contributions.

Some Bargaining Councils (not all) even have online-based portals (much like SARS E-filing) where returns are created and submitted. And much like SARS E-filing, these sites often have little glitches that need to be addressed before one can do a proper submission.

All Payroll Managers should be aware that your payroll data needs to balance with your submission. This is especially true when data cannot be submitted directly from your payroll system to the Bargaining Council. This could be a real challenge, as Payroll systems often export Bargaining Council return data using information on sub-screens, which means that if employees are not flagged as Bargaining Council members, then even though the deductions were made on the payroll, they will not pull through onto your export. This creates quite a problem for companies when they cannot balance back to the original data on the payroll system, but with a little more attention to detail this can be prevented completely.

 

3.    Bargaining Council agents have the right to inspect and issue compliance orders to companies who are non-compliant

Compliance Orders may be issued without warning to companies who do not comply with a Bargaining Council’s Collective Agreement. These orders should not be ignored, but rather investigated and disputed, or paid on receipt. Please remember that this might also affect your payroll in the form of back pay, deductions, and classification of employees.

A company usually has 14 days to comply before the matter is referred to arbitration. At arbitration, the commissioner may award up to 200% penalties to a non-compliant company!

Non-compliance could include any of the following issues:

  • Not registering with the Bargaining Council
  • Not deducting and paying over prescribed levies and funds
  • Not submitting / paying monthly returns
  • Underpayment of wages / overtime
  • Unauthorised deductions

Compliance orders usually originate from a complaint lodged by an employee / or employees or it might even be submitted directly by a trade union who was made aware of issues by its members.

 

4.    Some Funds are taxable in the hands of the employer when paid over to the Bargaining Council

Some Bargaining Councils have Holiday Bonus, Sick Leave and Annual Leave Funds. The principle behind these funds is that companies contribute to them on a monthly basis for each scheduled employee. At the end of the year, the Bargaining Council can then pay out these funds to the employees as a holiday bonus. In the case of annual leave, the Bargaining Council pays it out on application for when the employee goes on leave.

It is important to note, that the Bargaining Council – although it is the one paying out the funds – does not become the employer and is not liable to deduct PAYE from the payout. This remains the obligation of the company, and on the payroll it becomes a taxable company contribution.

The other way in ensuring the money paid to these funds are taxed, is to enter it as an earning as well as a deduction in the period that the Bargaining Council pays out the money to the employees.

 

5.    Bargaining Council Wage Increases

One of the main functions of a Bargaining Council is to negotiate wages. When an agreement is reached between the parties, it is first submitted to the Minister of Labour for promulgation. It is important to note that once the parties have signed the agreement, it is not enforceable on companies who are not members of the parties who signed it. It only becomes law to them once the Minister promulgates the agreement and it is gazetted.

Another important factor to remember is that usually the “across the board” (ATB) increases apply to everyone who were employed before the date of promulgation. Those employed after this date will be paid at the new minimum wage rates. Should the ATB increase be insufficient to get an employee’s rate up to the minimum rate for his / her category, then such employee will be paid according to the minimum wage. The increases are normally structured in such a way that those employees with longer service periods would be on higher rates due to the ATB increases awarded to them.

 

Navigating the sometimes stormy seas of payroll processing in a Bargaining Council environment can be a challenge and it is important to know whether the company falls under the jurisdiction of a Bargaining Council, and what that Bargaining Council’s Collective Agreement states. It therefore makes sense to outsource such a function to someone with expertise on the subject, which is what makes Mediant Solutions a payroll bureau with a difference. You can contact us any time through our contact page.