Employment and employee benefits in South Africa: overview
A Q&A guide to employment and employee benefits in South Africa.
The Q&A gives a high level overview of the key practical issues including: permissions to work; contractual and implied terms of employment; minimum wages; restrictions on working time; illness and injury; rights of parents and carers; data protection; discrimination and harassment; dismissals; redundancies; taxation; employer and parent company liability; employee representation and consultation; consequence of business transfers; pensions; intellectual property; restraint of trade agreements and proposals for reform.
To compare answers across multiple jurisdictions, visit the Employment and Employee Benefits Country Q&A tool.
The Q&A is part of the multi-jurisdictional guide to employment and employee benefits. For a full list of jurisdictional Q&As visit www.practicallaw.com/employment-mjg.
Scope of employment regulation
Foreign nationals working in your jurisdiction?
Nationals of your jurisdiction working abroad?
Laws applicable to foreign nationals
Statutory minimum terms and conditions of employment apply to all employees working in South Africa, irrespective of their nationality or their employers' nationality.
The Labour Court has held that even foreign nationals employed illegally in South Africa can invoke the protection of employment law against unfair dismissal.
The principal employment laws are the:
Constitution of South Africa (Constitution). The Constitution enshrines the right to:
fair labour practices;
form and join trade unions; and
participate in trade union activities.
Labour Relations Act, 66 of 1995 (LRA). The LRA:
governs collective bargaining at the workplace;
regulates the right to strike and the recourse to lock-out in conformity with the Constitution;
regulates the resolution of disputes relating to unfair dismissals and unfair labour practices.
Except for the Constitution, the provisions of the LRA prevail over other legal provisions (including other Acts of Parliament).
Basic Conditions of Employment Act, 75 of 1997 (BCEA). The BCEA establishes and regulates for all employees minimum terms and conditions of employment (subject to minor exceptions such as members of the National Intelligence Agency). The minimum terms and conditions apply unless:
varied by ministerial determination by the Minister of Labour; or
the parties agree to more favourable terms and conditions of employment.
Employment Equity Act, 55 of 1998 (EEA). The EEA:
governs the implementation of affirmative action measures in the workplace to eradicate discrimination against previously disadvantaged groups;
prohibits unfair discrimination in any employment policy or practice;
requires designated employers to formulate employment equity plans and report on their implementation.
If a foreign national is employed by a foreign entity to work in South Africa, the foreign national's employment is determined by reference to the terms of their contract of employment only to the extent South African employment tribunals or the Labour Court are unable to exercise jurisdiction over the foreign entity.
There is a host of other important legislation pertaining to employment.
Laws applicable to nationals working abroad
Generally, South African employment laws do not apply to a South African national working abroad unless the employment contract specifies otherwise.
However, if a South African national is employed by a South African employer, the employment is regulated by South African employment laws (unless contractually provided otherwise), where the employee is either:
Seconded to work abroad.
Working abroad temporarily on behalf of the employer.
Restrictions on managers and directors
There are no express age restrictions on managers or directors. However, an employer cannot employ any person either (BCEA):
Below the age of 15 years.
Younger than the minimum school-leaving age (currently 15 years).
There are no laws prohibiting the employment of anyone over a certain age.
Provided that a foreign national has the required work permit (see Question 4, Permits) enabling them to be employed in South Africa, they can be employed in any capacity.
The Companies Act, 71 of 2008 (Companies Act) contains a number of provisions dealing with the ineligibility and disqualification of directors and prescribed officers (that is, persons with (or who regularly participate to a material degree in the exercise of) general executive control over and management of the whole or part of the company). For the purposes of the Companies Act, the term director includes prescribed officers when dealing with the ineligibility or disqualification of directors.
Disqualification. A person is disqualified from acting as a director if (Companies Act):
A court has prohibited the person from acting as a director.
The person is an unrehabilitated insolvent (that is, a bankrupt person who has not been granted an order of discharge and is therefore disqualified from holding public/private office).
The person is prohibited from acting as a director of a company by public regulation.
The person has been removed from an office of trust on the grounds of misconduct involving dishonesty.
The person has been convicted (in South Africa or elsewhere) and imprisoned without the option of a fine, or fined more than the prescribed amount, for: theft, fraud, forgery, perjury, or an offence involving fraud, misrepresentation or dishonesty.
Ineligibility. A person is ineligible to act as a director if they:
Are a juristic person (that is, an incorporated entity).
Are an unemancipated minor (that is, below the age of legal maturity).
Do not satisfy the qualifications set out in the company's memorandum of incorporation (see below).
A person who is ineligible or disqualified must not:
Be appointed or elected as a director or prescribed officer of a company.
Consent to being so appointed or elected.
A person who becomes ineligible or disqualified while serving as a director or prescribed officer of a company ceases to hold that office immediately (Companies Act).
A company's memorandum of incorporation can impose:
Additional grounds of ineligibility or disqualification.
Minimum qualifications that must be met by directors or prescribed officers of that company.
Grants or incentives
In certain sectors, an employer who employs a learner (that is, an apprentice) under the Skills Development Act, 97 of 1998 can receive rebates for skills development levies (see Question 21).
There are no filings required on commencement of employment. Employees must be registered with the South African Revenue Services and be allocated a tax number to cater for the deduction of income tax.
Permission to work
Foreign employees do not require a residence visa.
A person who is not a South African citizen or permanent resident cannot be employed in South Africa without a valid work permit issued by the Department of Home Affairs (Immigration Act, 13 of 2002). A work permit confers upon the employee the right to reside in South Africa for the duration of the work permit.
There are various categories of work permits, including:
General work permits.
Exceptional skills permits.
Intra-company transfer work permits.
Quota work permits.
Each of these permits has specific requirements that must be fulfilled. The most common types of work permits applied for are the general work permit and the intra-company transfer work permit.
Procedure for obtaining approval. An application for a general work permit must be lodged at either the nearest:
South African diplomatic representative office in the applicant's country of origin.
Regional office of the Department of Home Affairs where the applicant will be employed.
Applicants must complete an application for temporary residence form for a general work permit and provide various supporting documents. Supporting documents include (among others):
A passport that is valid for at least 30 days after the expiry of the intended period of stay.
An original medical certificate, vaccination certificate and radiological report (if required by law).
A certified copy of a contract of employment stipulating the conditions of employment and signed by both the employer and the applicant.
Certified copies of academic qualifications or degrees and certified copies of transcripts of these qualifications, and translation of them if required.
An original advertisement in the national printed media in the prescribed form and time frame.
Full particulars of the employer and proof of its registration with the Registrar of Companies.
A marriage certificate, or documents relating to the applicant's marital status or spousal relationship (if applicable).
Similar supporting documents are required for an intra-company transfer work permit, except that the employer does not need to demonstrate that it has advertised the position in South Africa.
Cost. The application fee for a work permit is currently ZAR1,520 (as at 1 August 2012, US$1 was about ZAR8.2).
Time frame. The application for a work permit generally takes between five to ten working days to process. However, an application can take 30 working days or longer to be processed (in some cases up to six months) depending on where the application is made.
Regulation of the employment relationship
Written employment contract
There is no express requirement that a written employment contract be concluded. However, all employers must provide their employees with written particulars containing the following information (BCEA):
The employer's full name and address.
The employee's job title and job description.
The employee's place of work and, if the employee's place of work varies, an indication of this.
The date on which employment began.
The employee's ordinary hours and days of work.
The employee's wage or the rate and method of calculating wages.
The rate of pay for overtime work.
Any other cash payments to which the employee is entitled.
How frequently remuneration will be paid.
Any deductions to be made from the employee's remuneration.
The leave to which the employee is entitled.
The period of notice required to terminate the employee's employment or, if employment is for a fixed term, the date on which employment will terminate.
A description of any council or sector-specific rules that apply to the employer's business.
Any period of previous employment that counts toward the employee's current period of employment.
A list of any other documents that form part of the employee's contract of employment, indicating a place that is reasonably accessible to the employee where these documents are kept.
The employer must:
Keep the information updated.
Provide any changes to the employee in writing.
Minimum terms and conditions of employment established by statute, bargaining council agreement or sectoral determination are implied terms of employment contract of an employee to whom the statute, bargaining council agreement or sectoral determination applies.
Collective bargaining agreements (CBAs) are concluded by negotiation between employers and trade unions. Any terms of a CBA dealing with substantive terms and conditions of employment are implied into the contracts of employees who:
Are members of the trade union which is party to the CBA.
In certain cases, fall within a particular bargaining unit in respect of which the employer and the trade union have agreed to negotiate on the terms and conditions of employment.
CBAs may also be binding on non-members of a trade union if the:
Trade union enjoys majority representation within the employer's workplace.
CBA identifies these employees and expressly binds them.
A unilateral variation of the terms and conditions of employment constitutes a breach of contract. Employers cannot implement these changes without the consent of the employees concerned.
An employer can retrench (see Question 19, Definition of redundancy/layoff) employees who refuse to agree to proposed changes to their terms and conditions of employment if the:
Proposed changes are operationally required.
Employer has consulted with its employees on the underlying rationale for the changes and attempted to obtain their consent.
Any retrenchment must be preceded by a fair process (LRA) (see Question 17, Procedural requirements for dismissal). A proposed amendment to the LRA will prohibit an employer from dismissing an employee if the reason for the dismissal is a refusal by the employee to accept a demand in respect of any matter of mutual interest between the employee and the employer. If passed into law, an employer will no longer be able to retrench employees in these circumstances. This is discussed at the conclusion of this chapter in greater detail (see Question 37).
Employees who intend to engage in strike action over an alleged unilateral change to their terms and conditions of employment can require the employer to either (LRA):
Restore the original terms and conditions of employment.
Refrain from implementing any changes for a period of 30 days.
The Labour Court can enforce compliance by means of a mandatory interdict (that is, mandatory legal proceedings ordering the employer to act in a particular way).
There is no general minimum wage applicable to all employees. Minimum wages are set by CBAs concluded either:
At bargaining councils, which apply in a particular industry.
By sectoral determinations in respect of specific industry sectors.
Minimum wages differ across sectors and industries and can also differ from one geographical region to another.
Restrictions on working time
The maximum ordinary working hours are 45 hours per week, worked as either (BCEA):
Nine hours per day (five-day week).
A maximum eight-hour day (six-day week).
Overtime is restricted to a maximum of ten hours per week (which can be extended to 15 hours per week for a maximum of two months per 12-month period under a CBA).
An employee can work a condensed working week of up to 12 hours per day (inclusive of meal intervals) without overtime pay, provided the employee is not required or permitted to work more than (BCEA):
45 ordinary hours per week.
Ten hours' overtime per week.
Five days per week.
Restrictions on working hours do not apply to:
Employees earning in excess of a specific threshold (currently ZAR172,000 per year).
Senior managerial employees.
Sales staff who travel and regulate their own working hours.
The BCEA also imposes certain restrictions on night work performed between 6.00pm and 6.00am.
Meal breaks. Employees who work continuously for more than five hours earn a meal break of at least one continuous hour. Employees are not required to be remunerated for this meal break unless during the meal break they are required to:
Perform their duties.
Be available to perform their duties.
If an employee works for no more than six hours per day, an agreement in writing can either:
Reduce their meal interval to 30 minutes.
Dispense with meal breaks entirely.
Other rest periods. The BCEA also provides for a:
Daily rest period. This must be for at least 12 consecutive hours between ending and recommencing work.
Weekly rest period. This must be for at least 36 continuous hours which, unless otherwise agreed, must include Sunday.
However, a written agreement can reduce an employee's daily rest period to ten consecutive hours, if the employee both:
Lives on the employer's premises.
Is provided with a meal break of at least three continuous hours.
A written agreement can also vary an employee's weekly rest period so that either the:
Employee receives a rest period of at least 60 consecutive hours every two weeks.
Employee's weekly rest period is reduced by no more than eight hours per week, if the rest period in the following week is equivalently extended.
Provisions relating to meal intervals, daily rests and weekly rests do not apply to employees earning above the annual threshold of ZAR172,000 (BCEA).
Employees who perform shift work on a Sunday or public holiday earn their ordinary daily wage even if the shift is shorter than their ordinary hours.
A shift spread over a Sunday or public holiday and another day, is deemed to have been worked in full on the Sunday or public holiday (unless the greater portion of the shift is worked on the other day).
Minimum holiday entitlement
Every employee is entitled to one of the following:
At least 21 consecutive (not working) days' annual leave in every 12-month leave cycle.
One day of annual leave for every 17 days during which the employee worked or was entitled to be paid.
One hour of annual leave for every 17 hours during which the employee worked or was entitled to be paid.
Annual leave must be granted within six months of the end of a preceding annual leave cycle.
Public holidays are regulated by the Public Holidays Act, 36 of 1994 and are not included in annual leave. There are currently 12 statutory public holidays per year. Employees are not required to work on public holidays, unless they agree to do so and are paid.
Illness and injury of employees
Entitlement to time off
In every sick leave cycle (a period of three years) an employee is entitled to paid sick leave equal to the number of days they would ordinarily work in a six-week period (BCEA). For example, if an employee works a five-day week, they are entitled to 30 days' sick leave in every three-year cycle.
On the employer's request, an employee must provide a medical certificate if they are absent due to illness either:
For more than two consecutive days.
On more than two occasions during an eight-week period.
Failing this, the employer is not obliged to remunerate the employee for the period of absence.
Entitlement to paid time off
Sick leave is on full pay, subject to the maximum paid sick leave permissible in a sick leave cycle (see above, Entitlement to time off).
Recovery of sick pay from the state
Sick pay cannot be recovered from the state.
Statutory rights of parents and carers
Parents (including maternity, paternity, surrogacy, adoption and parental rights, where applicable)?
Carers (including those of disabled children and adult dependants)?
Pregnant employees are entitled to at least four consecutive months' maternity leave, which can start at any time from either:
Four weeks before the expected date of birth.
A date from which a midwife or medical practitioner certifies that leave is necessary for the employee's health or that of her unborn child.
An employer is not obliged to remunerate an employee during maternity leave. Employees do not require a certain minimum period of continuous employment to be entitled to maternity leave.
There is no waiting period for an employee to become entitled to maternity leave.
Payment of maternity benefits is regulated by the Unemployment Insurance Act, 63 of 2001.
Paternity and parental rights
An employee is entitled to a total of three days' paid family responsibility leave in every annual leave cycle, which can be taken in any of the following circumstances:
When the employee's child is born.
When the employee's child is sick.
In the event of the death of the employee's spouse/life partner, parent, adoptive parent, grandparent, child, adopted child, grandchild or sibling.
To be entitled to paid family responsibility leave, an employee must both:
Have been employed for at least four months.
Work for more than four days per week.
There are no rights in relation to surrogacy.
There are no adoption rights except in respect of paid family responsibility leave (see above, Paternity and parental rights).
There are no statutory rights or provisions which cater for the care of adult dependants or disabled adults or children.
Continuous periods of employment
In the event of a dismissal due to the employer's operational requirements (see Question 19, Definition of redundancy/layoff), the employee's length of service is used to calculate the statutory severance pay to which they are entitled. An employee is entitled to severance pay equal to one week's remuneration for every completed year of continuous service.
When determining an employee's length of service, the employer must take into account any period of previous employment with the same employer, if the intervening period was less than one year.
Consequences of the transfer of employee
When the whole, or part of, a business is transferred as a going concern, all employees of the transferor business automatically transfer to the transferee, which must recognise the employees' period of service with the transferor.
See also Question 26.
Temporary and agency workers
South African law does not distinguish between temporary and permanent employees. However, the provisions of the BCEA governing basic terms and conditions of employment do not apply to employees who work less than 24 hours per month. Temporary is a term sometimes used for fixed term contract employees. There are proposed amendments affecting agency, fixed term contact, and "temporary" employees, which are dealt with at the conclusion of this chapter (see Question 37).
Agency workers are governed by the LRA. Agencies are referred to as temporary employment services (TES) in the LRA and are known colloquially as labour brokers. A TES is any person who, for reward, procures for or provides to a client other persons who render services to, or perform work for, the client and who are remunerated by the TES (LRA).
Agency workers are deemed to remain employees of the TES. However, the TES and the client are jointly and severally liable if the TES contravenes any of the following in respect of its agency workers:
An arbitration award governing the terms and conditions of an agency worker's employment.
The provisions of the BCEA.
The joint and several liability does not extend to contraventions of the LRA by the client (such as unfair dismissal).
Fixed-term contract workers
Fixed-term contract workers enjoy the full protection of labour laws. However, on termination of a fixed-term contract:
No procedure is required.
No notice need be given.
No severance pay applies.
The protection of employees' data is currently regulated by the constitutional right to privacy. However, this is likely to change when the Protection of Personal Information Bill is enacted (see Question 37).
Discrimination and harassment
Protection from discrimination
The LRA prohibits any dismissal based on unfair discrimination.
The EEA protects employees (and applicants for employment) from unfair discrimination in any employment policy or practice. Grounds of unfair discrimination include:
Ethnic or social origin.
Birth (that is, whether an individual is born within a marriage or born extra-maritally).
It is not unfair discrimination to take affirmative action measures in accordance with the EEA, such as promoting black South Africans as a priority in terms of a policy (EEA).
There is no qualifying period for alleging that an employee has been unfairly discriminated against. Therefore, an employee does not require a minimum period of continuous employment to allege discrimination.
Protection from harassment
The EEA prohibits harassment. Harassment is a form of unfair discrimination (EEA).
An employer can be liable for any act of unfair discrimination (including harassment) perpetrated by one of its employees against another, if the employer both:
Was made aware of the alleged unlawful conduct.
Failed to take the necessary steps to eliminate it.
Employees who disclose information in a prescribed manner, of criminal, unlawful or irregular conduct in the workplace are protected from any form of occupational detriment (such as victimisation) (Protected Disclosures Act). Dismissal of a whistleblower is categorised as automatically unfair and attracts a punitive sanction for the employer.
Dismissal of employees
Dismissed employees are entitled to a notice period (or payment in lieu of notice) of at least (BCEA):
One week, during the first six months of employment.
Two weeks, during the second six months of employment.
Four weeks (the maximum entitlement), after the employee has been employed for more than one year.
An employment contract can provide for a longer notice period or payment in lieu of notice. However, the notice period can be dispensed with in a case of summary dismissal (that is, when an employee is dismissed in circumstances justifying dismissal without notice (for example, in cases of serious misconduct such as dishonesty or assault)).
Severance payments are only payable in the case of retrenchment (see Question 19). Dismissed employees are entitled to receive the value of their accrued leave as well as any contractual entitlement.
Procedural requirements for dismissal
An employee can only be dismissed for a fair reason, related to either the:
Employee's conduct or capacity (such as poor performance and inability to perform due to a lack of skills or illness).
Employers' operational requirements (retrenchment).
A dismissal must be effected in accordance with a fair procedure. The procedure to be followed depends on whether the dismissal is due to the employee's conduct/capacity or the employer's operational requirements.
A dismissal that does not comply with fair procedure is unfair and the employee is entitled to one of the following:
Reinstatement (with or without retrospective effect).
Compensation (limited to 12 months' remuneration, or 24 months in the case of an automatically unfair dismissal).
Protection against dismissal
All employees are protected against unfair dismissal and an employer cannot give an employee notice without a fair reason (see Question 17).
Certain employees enjoy enhanced protection on dismissal (defined as an "automatically unfair dismissal"), including:
Employees on a protected strike.
Employees who refuse to perform locked-out or striking employees' work.
Where the reason for dismissal is:
due to the employee exercising her rights under the LRA;
to compel the employee to accept a lock-out demand.
Employees dismissed on account of one of the named instances can receive up to 24 months' remuneration as compensation.
Definition of redundancy/layoff
The term redundancy refers to the abolition of a post which leads to retrenchment in the absence of a suitable alternative post. Retrenchment refers to redundancies/layoffs based on the economic, technological, structural or similar needs of the employer (that is, operational requirements).
The procedure to be followed is the same for both individual and collective retrenchments.
As soon as an employer contemplates retrenchment it must do all of the following:
Consult with those affected or their representatives (such as a trade union).
Engage in a meaningful joint consensus-seeking process before a final decision is taken.
Provide the prescribed information to the affected employees.
Consider any possible alternatives to dismissal.
Select those affected based on selection criteria that are either agreed or are fair and objective.
Large-scale retrenchments (that is, retrenchments above a prescribed threshold, which increases according to the size of the total workforce) are given special treatment, which includes:
A facilitation process.
Extended waiting periods before notice can be given.
The right of employees to strike (which would otherwise be prohibited for disputes of right).
The employees' right to seek interdictory relief to compel compliance with a fair procedure.
Redundancy/layoff pay is referred to as severance pay. It is an amount equal to at least one week's remuneration for each completed year of continuous service. It is paid in addition to any other amount payable under law, such as:
Payment in lieu of notice.
The value of accrued leave.
Any contractual entitlement on termination of employment.
Employee representation and consultation
Employees have no right to representation on a board of directors.
Employees and their trade unions must be consulted in the event of a contemplated retrenchment (see Question 19). One of the following is consulted, in accordance with a set hierarchy:
The party specified in a CBA.
A workplace forum (very few exist in South Africa) (failing the above).
A registered trade union (failing the above).
Employees themselves or the representatives they appoint for the purpose (failing the above).
There is no legal requirement to consult on a sale/transfer of a business as a going concern. However, it is best practice to consult and is recommended in relation to sharing information with the trade union.
In a share sale transaction, the employer's identity remains the same and there is no impact on employment. Therefore, there is no legal requirement to consult. The same applies to a sale of assets.
Where dismissals are contemplated, the proper process must be followed (see Question 19).
If an employer fails to consult properly in the case of a contemplated retrenchment, the Labour Court may find that the dismissal is procedurally unfair. In this case, the Labour Court can order up to 12 months' worth of remuneration be paid as compensation.
In a large-scale retrenchment, the Labour Court may interdict (that is, prohibit by court order) the process or the employees may be entitled to embark on a protected strike (see Question 19, Procedural requirements).
Employees can lodge a claim for a procedurally unfair dismissal, or in the case of a large-scale retrenchment, obtain an interdict or embark on a protected strike (see above, Remedies).
Consequences of a business transfer
Automatic transfer of employees
On the transfer of a business (which includes a trade, undertaking or service) or part of a business transfer, as a going concern (section 197, LRA):
All employees of the transferor transfer automatically to the transferee on the same terms and conditions of employment.
The continuity of employment is unaffected.
The transferee is automatically substituted in the place of the transferor in all contracts of employment.
Outsourcing transactions, including second generation outsourcing transactions, are also subject to section 197 of the LRA.
Protection against dismissal
An employee cannot be dismissed if the reason for dismissal is either a:
Reason related to a transfer.
Protection is afforded to both:
If a dismissal is found to fall foul of the prohibition, the dismissal is both:
Subject to a punitive sanction of up to 24 months' remuneration as compensation.
However, a transferred employee (and a non-transferring employee) can be dismissed on the grounds of valid operational requirements.
Harmonisation of employment terms
The new employer must employ transferred employees on either:
The same terms and conditions.
Terms and conditions that are, on the whole, not less favourable.
If the employer wishes to alter the terms and conditions of transferred employees, it must obtain consent through a consultation process. If consent is not obtained, the employer can, as a last resort, enter into a consultation process with a view to finally retrenching employees who refuse to agree to the changes (provided the employer can demonstrate an operational requirement that the condition is altered). This is risky and careful planning and advice must be taken.
Employer and parent company liability
An employer can be liable for the acts of its employees?
A parent company can be liable for the acts of a subsidiary company's employees?
The principle of vicarious liability holds an employer liable for the acts of its employees, if the employees are acting in the course and scope of employment when at fault in causing the loss, damage or harm to a third party (including through negligence).
An employer can be liable for acts of discrimination committed by its employees if the employer fails to take all reasonable steps to eliminate discrimination (EEA). In the context of sexual harassment, an employer owes a duty of care to its employees which extends beyond providing a safe working environment. This includes the duty to take reasonable steps to ensure the working environment is free of harassment.
Parent company liability
A parent company is generally not liable for the acts of a subsidiary or affiliated company that is a separate legal entity. If an employee has suffered harm due to the parent company's conduct (for example, where the parent company imposed policies on the subsidiary and controlled the subsidiary's conduct, which led to the harm caused), the injured employee has a right of tort (delict) against the parent company.
Health and safety obligations
The Occupational Health and Safety Act, 85 of 1993 (OHSA) requires an employer to provide and maintain a working environment that is safe and without risk to employees' health. This includes:
Providing and maintaining plant and machinery that is safe.
Eliminating or mitigating hazards or potential hazards to health and safety.
Taking measures to ensure that everyone in the workplace complies with the requirements of the OHSA.
Ensuring that work is performed under the supervision of an individual trained in safety issues and able to take precautionary measures.
Ensuring the above measures are met as far as they are necessary and are in the interests of health and safety.
The OHSA also:
Contains specific requirements for certain work, such as manufacturing.
Sets out provisions for appointing health and safety representatives and committees.
Specifies what is to be done in the case of accidents.
It also has a number of regulations, some specific to certain types of work. Employers must comply with regulations which relate to their particular business.
Taxation of employment income
Foreign nationals working in your jurisdiction?
Nationals of your jurisdiction working abroad?
Individuals who are not South African tax resident are generally subject to tax on their South African remuneration. However, there is an exemption for up to two years for residential accommodation provided to foreign nationals working in South Africa, if the relevant requirements are met. The exemption runs over tax years: 1 March to 28/9 February.
In addition, foreign nationals can become South African tax resident if they satisfy a physical presence test. Under this test, foreign nationals are physically present if they have been present in South Africa for more than 91 days per year for six tax years (or for more than 915 days in aggregate during the preceding five tax years).
These rules are subject to any applicable double tax treaty (DTT) relief.
Nationals working abroad
South African tax residents are taxed on their worldwide income. However, there is an exemption for employment income earned outside of South Africa, if during a period of 12 months the employee was outside of South Africa for both:
At least 183 full days in aggregate.
A continuous period exceeding 60 full days.
Rate of taxation on employment income
For non-standard employment (that is, generally employment for less than 22 hours per week), a flat tax rate of 25% usually applies. In other cases, employees' tax is levied on a sliding scale that mirrors the income tax rates for individuals. These rates are as follows for the year ending 28 February 2012:
Taxable yearly income of ZAR0 to ZAR150,000: the tax rate is 18%.
Taxable yearly income of ZAR150,001 to ZAR235,000: the tax rate is ZAR27,000 plus 25% of the amount above ZAR150,000.
Taxable yearly income of ZAR235,001 to ZAR325,000: the tax rate is ZAR48,250 plus 30% of the amount above ZAR235,000.
Taxable yearly income of ZAR325,001 to ZAR455,000: the tax rate is ZAR75,250 plus 35% of the amount above ZAR325,000.
Taxable yearly income of ZAR455,001 to ZAR580,000: the tax rate is ZAR120,750 plus 38% of the amount above ZAR455,000.
Taxable yearly income of ZAR580,001 and above: the tax rate is ZAR168,250 plus 40% of the amount above ZAR580,000.
A primary rebate of ZAR10,755 must be deducted from the above tax amounts, which means that employees under 65 years old can earn up to ZAR59,749 per year without paying income tax.
Social security contributions
Unemployment insurance contributions. The employer and employee each contribute 1% of the employee's remuneration to the Unemployment Insurance Fund (subject to certain adjustments and capped at ZAR12,478 per month).
Exemptions include where an employee:
Works for their employer for less than 24 hours a month.
Entered South Africa on a contract of service and is contractually required to be repatriated or to leave South Africa at the end of the contract.
Skills development levy. All employers paying total annual remuneration exceeding ZAR500,000 must pay a skills development levy (that is, money that employers must pay to the South African Revenue Service (SARS) for skills and development of their employees) of 1% of the total annual remuneration.
Workmen's compensation levy. Employers must pay a levy known as workmen's compensation (Compensation for Occupational Injuries and Diseases Act, 130 of 1993). The amount to be paid is determined by an annual assessment, based on both the:
Remuneration paid to employees.
Class of industry in which the employer operates.
Is linked to the employee's salary?
Is linked to employer and/or employee contributions and investment return on those contributions?
It is common (although not compulsory) for large corporate employers to provide employees with pension or provident schemes in the form of either:
Umbrella schemes, in which a number of employers participate.
Employer and employee contribution levels are determined by the rules of each scheme.
Linked to the employee's salary
Defined benefit schemes provide benefits which are linked to the employee's salary on retirement or exit from the scheme, and are guaranteed by the employer. Very few defined benefit schemes still exist.
Linked to employer and/or employee contributions
The majority of schemes are defined contribution schemes, where the value of retirement or exit benefits depends on the:
Contributions of the employer and employees.
Investment returns achieved by the scheme.
The Pension Funds Act of 1956 (PFA) created the position of Registrar of Pension Funds (Registrar), who oversees the operation of pension and provident schemes. The Registrar is an employee of the Financial Services Board, a financial regulatory body created by the Financial Services Act.
The PFA governs the operation of pension and provident schemes and provides the Registrar with the powers needed to carry out his function.
Tax on pensions
Tax relief on employer contributions
Tax relief is available on the following:
Contributions to approved pension or provident schemes. These are not generally taxable in the hands of the employees. The employer is generally entitled to an income tax deduction for these contributions. However, the portion of contributions to pension, provident and benefit funds exceeding 10% of aggregate approved remuneration from the Registrar are potentially not deductible. The SARS typically allows up to 20% of this aggregate approved remuneration to be deducted.
Lump sum contributions. These are allowed as a deduction in instalments.
Whether contributions above 10% are deductible depends on the particular facts and circumstances.
Tax relief on employee contributions
Employees are generally entitled to income tax deductions for:
Pension contributions. Deductions are available up to:
the greater of ZAR1,750 or 7.5% of retirement-funding employment income for current contributions; and
ZAR1,800 for arrear contributions.
Annuity funds. The maximum deduction is:
the greater of ZAR3,500 less the pension deduction, ZAR1,750, or 15% of non-retirement-funding employment income, for current contributions; and
ZAR1,800 for arrear contributions.
Provident scheme contributions are not tax deductible.
Automatic transfer of pension rights
Provided certain criteria are met, transferred employees can be transferred to a different pension, provident, retirement or similar fund. The Registrar must be satisfied that any scheme to amalgamate or transfer funds both:
Is reasonable and equitable.
Accords full recognition to:
the rights and reasonable benefit expectations of the persons concerned in terms of the fund rules; and
additional benefits which have become established practice.
Other protection for pension rights
Pension rights are protected under the PFA, which sets up the offices of the Registrar and the Pension Fund Adjudicator (Adjudicator). The Adjudicator has wide-ranging powers, including the power to:
Hear and determine disputes.
Make an order which any court of law can make.
Individual fund rules also provide protection.
Employees who are working abroad?
Employees of a foreign subsidiary company?
Employees working abroad
Employees who are working abroad can participate in a pension scheme established by a parent company.
Employees of a foreign subsidiary company
Employees of a foreign subsidiary company can belong to a South African pension scheme set up by a parent company. This depends on the rules of the particular scheme. The tax reliefs discussed in Question 30 generally apply.
If an employer becomes insolvent, it is likely that any employment will cease and the employer will no longer be required to maintain contributions for its employees' pension schemes. However, the circumstances for pension scheme protection depend on whether the employee has either a:
Defined contribution scheme.
Defined benefit scheme.
In the case of a defined contribution scheme (that is, where the employees' benefits are the product of contributions made and invested during the course of the employment relationship) employees cannot expect their contributions to be protected.
However, in the case of a defined benefit scheme (very few still exist), the benefit is stipulated and guaranteed by the employer. In such a case, the employee can claim for their stipulated benefit against the scheme, which in turn has a claim against the insolvent employer (the liquidator) if scheme funds cannot meet employee claims in full.
It is relatively common for employees to be incentivised by a variety of bonus schemes, whether they are discretionary or contractual. The decision to reward an employee is solely at the employer's discretion. This is subject only to a possible employee challenge that the exclusion is an unfair labour practice, based on unfair conduct (that is, an act or omission) of the employer.
There are no restrictions or guidelines relating to contractual or discretionary bonuses. Examples of bonuses include:
Thirteenth cheques (that is, a double cheque/payment, often paid in December).
Non-discretionary contractual entitlements.
Intellectual property (IP)
The employer owns the IP rights created by employees in the course and scope of their employment, despite an absence of a contractual term to this effect. Therefore, it is common and advisable for the employment contract to specifically address ownership in relation to the various IP rights.
Non-employees (such as independent contractors) own the IP rights created by them, unless there is a specific assignment of IP rights to the employer in a written agreement.
Restraint of trade
Restriction of activities
Employees are restrained from competing with their employer by virtue of the employment relationship, which includes the duty to act in good faith towards the employer.
Post-employment restrictive covenants
Former employees are restrained from competing with their employer if they have concluded an agreement to that effect. These agreements are commonly concluded with executive, senior management or other key employees at the start of employment, and are found in either:
The employment agreement itself.
A separate agreement which addresses restraint of trade specifically (restraint agreement).
Such an agreement is binding and enforceable if the:
Agreement is not unreasonable (and would therefore not be struck out on the basis of public policy). The employee/former employee bears the onus of demonstrating that the agreement is unreasonable and hence unenforceable against her. Factors which play a role in determining whether or not the agreement is reasonable include the:
time period for which the agreement operates;
geographical area in which the agreement operates.
Employer can demonstrate it has a proprietary interest worthy of protection (such as trade secrets and/or customer/supplier/trade connections, to which the former employee was exposed while employed).
There is no requirement that an employer pays either the:
Employee consideration for concluding the agreement.
Former employee a fixed and regular payment, or other consideration during the restraint's period of operation.
Proposals for reform
Protection of Personal Information Bill (PPIB)
The PPIB is not yet an Act of Parliament. Based on the Constitutional right to privacy, the PPIB will:
Oblige employers to have regard to what type of personal information of employees can be collected and stored.
Regulate the manner in which information is collected and stored.
Prohibit the collection of certain personal information, referred to as special personal information (subject to certain exceptions).
However, until the PPIB is enacted, the protection of employees' data remains regulated in terms of the constitutional right to privacy.
Proposed amendments to LRA and BCEA
Towards the end of 2010, the Government published a number of proposed amendments to the LRA and the BCEA (collectively referred to as "the Labour Amendment Bills"). Their publication drew widespread criticism, albeit from opposite sides of the political spectrum, by both organised labour and business. After a year-long process of negotiation within the National Economic Development and Labour Council (NEDLAC), the Labour Amendment Bills were submitted to Parliament's Portfolio Committee on Labour in April 2012, notwithstanding the fact that NEDLAC failed to approve the Labour Amendment Bills prior to their submission to the Portfolio Committee due to an inability amongst members to reach agreement on key aspects of the proposed amendments. The indication from the Government is that the Labour Amendment Bills are likely to be passed by Parliament in their current form. As a general comment, it is apparent that the amendments are primarily aimed at increasing the protections afforded to lower income employees, on the one hand, and providing greater security to those employees who fall within atypical or non-standard modes of employment, on the other. We discuss the more important proposals below.
The proposed regulation of labour broking
The Labour Relations Amendment Bill proposes a number of significant amendments to the current legal position regarding labour brokers. The amendments do not, per se, dissolve the triangular relationship between client, labour broker and employee. However, what is proposed is the effective closure of certain loopholes in the current regulation of labour broking, such that security of employment is addressed, as well as the inequality that is perceived by the Government to exist between the terms and conditions of employment of agency workers and those of permanent employees.
In the first instance, the joint and several liability of the client and the TES is expanded upon so that the employee of a TES may, in circumstances in which the TES contravenes a collective agreement, an arbitration award governing terms and conditions of employment, or the provisions of the BCEA, institute proceedings against either the TES or the client. Any award or order made against a labour broker or a client may be enforced against either. It is apparent that this enhanced liability of the client is intended to deal with the spectre of "fly by night" labour brokers and to make certain that the client plays a significant oversight role, in order to mitigate its own risk, to ensure that any TES with which it has contracted for the provision of labour is both reputable and established, and complies with its statutory or other employment obligations. The second amendment concerns the obligation placed on labour brokers to employ persons on the same terms and conditions of employment as may be applicable, by virtue of sectoral determinations or collective agreements, to permanent employees of the client with whom the employees of the TES are placed.
In addition, it is proposed that employees who earn below a statutorily determined threshold and who perform services for a client for a period exceeding six months are deemed to be employed by the client (that is, the nature of the triangular relationship is, in this instance, reversed). An employer is required to treat such employees similarly to the manner in which it treats its own employees.
Restrictions on temporary employment
Another significant amendment to the current regulation of employment concerns the treatment of fixed term contracts of employment. The Labour Relations Amendment Bill provides that an employer may only employ individuals, who earn below a stipulated earnings threshold, on fixed term contracts, or renewals of those, that endure for longer than six months if either:
The nature of the work is demonstrably of a limited duration.
The employer is able to demonstrate a justifiable reason for fixing the duration of the contract of employment.
This section provides a (closed) list of potential reasons for engaging an employee on a fixed term contract, including:
Where the individual is required to substitute another employee who is temporarily absent.
Where there has been a temporary increase in the volume of work which is not expected to endure beyond 12 months.
Where the individual is engaged to perform seasonal work.
Any employment in contravention of this section (that is, where the contract, or successive renewals of the contract exceeds six months in the absence of any of the justifications stipulated in the section) is deemed to be employment of an indefinite duration.
Regulation regarding changes to terms and conditions of employment
A unilateral variation of terms and conditions of employment constitutes a breach of contract and employers are not entitled to implement these changes without the consent of the employees concerned. However, the law also currently permits a certain level of flexibility in that an employer is entitled to invoke the retrenchment procedures contained in the LRA, and dismiss employees who refuse to countenance changes to terms and conditions of employment, where:
The proposed changes are operationally required.
The employer has consulted with the employees concerned on the underlying rationale for the changes.
This level of flexibility was granted to employers not by the legislature but by the Supreme Court of Appeal (SCA) in 2005 in a decision which distinguished retrenchments in such circumstances from "lock-out dismissals" which are expressly prohibited by the LRA. "Lock-out dismissals" are dismissals the purpose of which is to compel employees to accept the employer's demand (that is, they are "provisional dismissals" in that the employer is effectively stating to its employees that it will rehire them subject to their agreement to new terms and conditions). The legislature has now effectively rejected the SCA's decision by amending the provision in the LRA dealing with "lock-out dismissals", so that an employer cannot dismiss employees either:
In order to compel acceptance of a demand.
Because the employee refuses to accept a demand.
The latter encompasses the previously permitted retrenchment of employees who refuse to agree to changes to terms and conditions.
Exclusion of higher earning employees from certain protections
The proposed amendment provides that the dismissal of an employee who earns above a certain threshold is deemed to be fair if the employer gives the prescribed notice of termination (three months or any longer period as specified in the employee's contract of employment), or pays the employee in lieu of notice. This amendment will only apply to those contracts of employment concluded before the commencement of the Labour Relations Amendment Bill, with effect from two years after that commencement. The exclusion will not apply to automatically unfair dismissals. The rationale for the proposed exclusion of higher-earning employees from the full protections afforded employees from unfair dismissal is set out in the Bill's Explanatory Memorandum.
Increased regulation of strike action
The Labour Relations Amendment Bill proposes the introduction of ballots by trade unions prior to the commencement of strike action. The purpose of this is to ensure that a trade union does, in fact, enjoy the majority support of its members before going out on strike. The CCMA is empowered to issue a certificate confirming that the trade union concerned has, in fact, conducted a ballot and enjoys majority support of its members before they go out on strike. COSATU has (predictably) opposed this proposed requirement on the basis that it restricts a trade union's entitlement to invoke the strike procedures of the LRA. The rationale for the proposed ballot requirement appears to be the increased presence of violence and intimidation in strike action in South Africa against non-striking employees, which is more likely to occur in strike action enjoying only minority support.
*The authors wish to thank their colleagues Patricia Williams, for assistance on tax issues, and Ana Milovanovic, for assistance on pension/provident scheme issues, in this chapter.
Sabinet Legal - Net Law
Description. Sabinet is privately maintained, and is an official and up-to-date website.
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Department of Labour
Description. The Department of Labour is an official Government website.
Qualified. South Africa, 1985
Areas of practice. Employment and labour law; corporate governance issues including advice; litigation, employment tribunal mediation and arbitration, and employment related aspects in the Competition Commission and Competition.
- Advising a number of corporate entities and parastatals on a confidential basis on corporate governance issues including removal and discharge of executive directors and senior managers.
- Advice on the applicability of the collective bargaining defence to alleged contraventions under the Competition Act.
- Advising on the Wal-Mart/Massmart transaction.
- Advising on employment implications of the Momentum/Metropolitan merger, including employment-related competition issues.
- Advising on employment implications of the proposed HSBC/Nedbank transaction.
Qualified. South Africa, 2003
Areas of practice. Employment law issues; labour and general litigation in employment tribunals; employment related commercial law; sexual harassment advice; employment equity; transfers of businesses.
- Advising a number of corporates on a confidential basis on corporate governance issues including removal and discharge of Executive Directors.
- Advising on the Wal-Mart/Massmart transaction.
- Advising Chinese client on employment and health and safety aspects of proposed development of a nuclear power plant in South Africa.
- Advising Tanzania Cigarette Corporation on aspects of Tanzanian Employment Law.