Is the workforce an asset or an expense?

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Ivan Israelstam | Chief Executive | Labour Law Management Consulting | mail me |


Is the money spent on procuring and retaining employee skills an expense or an investment?

Either way, employee costs are most often amongst the biggest if not the very biggest and include:

  • Remuneration
  • Employee procurement costs paid to advertising houses and recruitment agencies
  • Induction and training expenses
  • The employer’s contributions to medical aid, retirement schemes and other funds
  • Perks such as motor vehicles
  • Late coming and absenteeism, which is the second biggest cost after remuneration.

Additional hidden costs include legal costs related to labour issues. These include the legal fees for fighting CCMA and Labour Court cases, the payment of compensation orders made at these forums and back pay associated with reinstatement orders.

Our extremely harsh labour laws contribute to the view of employers that employees are an expense. These laws promote the right to strike over wages, minimum wage requirements, compulsory benefit contributions in some industries, paid sick leave for employees who have no doctor’s certificates (in certain cases), unlimited back pay amounts for dismissed employees and compensation/damages orders that can greatly exceed 24 months’ remuneration.

In Parry vs Astral Operations Ltd (2005 10 BLLR 989) 

The Labour Court found that the employee had been unfairly retrenched and awarded the employee:

  • Contractual damages
  • Relocation costs
  • Share options
  • Accrued profit shares
  • Notice pay
  • Salary for time worked
  • Severance pay
  • Compensation equal to12 months’ remuneration
  • Punitive scale legal costs

In Evans vs Japanese School of Johannesburg (2006 12 BLLR 1146) 

The Labour Court found that the employee had been automatically unfairly dismissed.

The employer was therefore ordered to pay the employee compensation and damages well in excess of two years’ remuneration. The amount came to R406,668.

Looked at from this point of view it is difficult to see employees as anything but a source of great expense. However, employers cannot ignore the value that employees can add to the business or other organization.

Employers that wish to convert their employment costs from what is often an expensive nightmare into a positive investment need to:

  • Develop a mature and mutually respectful relationship with employees
  • Inform themselves of the skills of their employees
  • Train their employees and manage their performance proactively
  • Avoid ignoring employee misconduct and poor work performance
  • Discipline employees firmly and swiftly but only where the proven facts justify it
  • Utilize the skills of a reputable labour relations expert so as to know when to demote, retrench, fire or otherwise discipline employees.

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