In December 2010 the Department of Labour published proposed amendments to labour laws as well as the introduction of the Public Employment Service Bill. These changes to legislation would, in effect, outlaw temporary labour services and ban so-called labour brokers, or temporary employment service providers.

According to Gary van Heerden, business development director at Webcom, these proposed amendments may not have come into effect yet, but many large enterprises have already begun to implement changes by terminating all temporary employment services and contracts.
“The problem with the proposed amendments is that while they were originally designed to prevent the abuse of blue collar workers such as miners and builders for example, the Act itself covers temporary employment as a whole and does not discriminate between different levels of employment or different industries,” says Van Heerden.
“As a result, while these changes were designed to give blue collar workers more job security and stability, the greatest effect has in fact been felt in the white collar worker industry, particularly in the ICT field.
“IT outsourcing has become a popular model in recent years due to a lack of highly specialist skills in the country combined with ever tightening IT budgets. However under the proposed legislation changes this model will no longer be possible, as it is by definition a temporary labour service.
One of the proposed changes to the act states that ‘an employer must be employed permanently, unless the employer can establish a justification for employment on a fixed term contract basis’. Many ICT implementations are project based, and are therefore temporary in nature. However, more often, the length of the project is not predetermined, and under the amended law this would mean that the project managers and other people involved with an ICT implementation would have to be employed permanently.
“The net result for ICT outsourcing and the ICT industry as a whole has been more people becoming permanently employed and less people being hired on a contractual basis. Temporary employment service providers such as ICT outsourcing companies have therefore had their scope for work minimised and are seeing more ‘once off’ placements as opposed to annuity income.”
Van Heerden says the amended law could also have an impact on companies themselves, since it costs substantially more too permanently employ ICT resources than having them as outsourced contractors.
“When a company is gearing up for a tender or a specific project, they will as a result need to hire more resources and will then have a larger number of permanent employees on their payroll. When a tender or project is complete, the company is then over-resourced with a redundant workforce that costs money but yields no output,” he says.
“The other problem is that these scarce skills are not always available therefore companies may not be able to accept contracts or tenders as they do not have the necessary skilled resources to fulfil the scope of the project. Taking this a step further, even tenders themselves could become outlawed, since a tender is also a contract and is a temporary service.
“Although the amendments have not yet been finalised many large companies have pre-empted the change and have already begun to terminate contract workers. This has equated to a substantial number of highly skilled workers becoming unemployed and having to claim UIF instead of contributing positively towards the country’s economy,” Van  Heerden adds.
“The reality is that a lot of large companies rely on contract workers to operate successfully, and in turn contractors contribute a large percentage of the country’s economy. As a downside to this they also contribute towards a large percentage of taxes, and without these workers and the subsequent taxes they pay, the effect on the economy will be detrimental.
“The ICT industry could in fact grind to a halt and if these proposed amendments do come into effect, the outsourcing model as we know it is dead.”