Pensions clause for contract staff

2011-03-08 00:00

CONTRACT workers could enjoy the same pension benefits as their permanent colleagues if a proposed amendment to the Basic Conditions of Employment Act relating specifically to benefits offered to fixed-term employees is passed.

The amendment calls on employers to provide benefits similar or equal to those for permanent employees. This will result in additional costs to employers. Where employers contribute to pension funds on behalf of their permanent employees, they may be required to offer fixed-term employees access to the pension fund and make similar contributions.

When an employee is on a short-term contract of three months, the administrative cost and burden involved to admit the employee to a pension fund might not make business sense.

Similarly, when the contract comes to an end and the employee withdraws from the fund, a further administrative burden would be imposed. Employers will consider ways to avoid having to arrange for short-term employees to become members of the fund.

In the United Kingdom, similar legislation is in place to protect fixed-term employees. Employers are required to treat these employees no less favourably than their comparable permanent employees, unless there is an objective justification for doing so.

The employer may be able to justify not allowing access to the fund to fixed-term employees based on cost and administrative concerns. This “objective justification” provision is excluded in South Africa’s proposed amendment. In principle, however, it may be possible to offer pension fund access on different terms, providing the overall package of rights is comparable.

From a local perspective, the proposed amendments state that the benefits offered must be “similar or of equal value”. Therefore, it may be possible to offer equivalent contributions in a private arrangement such as a retirement annuity. Another option would be to pay fixed-term employees an additional amount on top of their salary, equivalent to the value of the pension fund contributions made in respect of permanent employees, or provide them with a total cost-to-company package that would include the value of the employer pension contribution.

The employer may also wish to introduce a waiting period for access to the pension fund. This is where both permanent and fixed-term employees would be allowed access to the pension fund, and the employer obliged to make contributions, only after being in service for a certain period, for example one year.

Although the proposed amendment would be an employment issue and no claim could be made against the trustees of a pension fund if fund membership were not offered, it would be an issue that trustees of funds that exclude fixed-term employees may wish to raise with the employer.

Max Rowley is an associate of the pension law department of Shepstone & Wylie Attorneys

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