The limited duration contract balancing act

A limited duration contract must be carefully managed

Limited duration contracts have to be carefully managed to ensure they obey the letter of the current law

There is immense value in being able to hire people on fixed-term employment contracts. They can help fill a maternity leave hole, provide additional support during busy periods, or fill gaps that need urgent or immediate filling for one administrative reason or another. These contracts provide both the organisation and the individual with a set period of reliable engagement that can be immensely valuable. However, these limited duration contracts have to adhere to very specific regulations and guidelines as outlined in the Labour Relations Act and companies failing to pay attention can end up paying large costs instead. According to Nicol Myburgh, Head: CRS Technologies HCM Business Unit, it’s become critical for companies to ensure that any limited duration contract be aligned to the letter of the law.

“The Labour Relations Act amended the terms of the limited duration engagement to prevent companies from constantly extending employee contracts until they decided they no longer needed them,” he explains. “Companies would maintain the contracts until it didn’t suit them anymore, and then simply not renew the contract. This is completely illegal now. Companies have to justify their decision-making process.”

This ruling doesn’t necessarily apply to all contracts; it is relevant to companies hiring employees earning below the income threshold – an annual amount set by the Minister of Employment and Labour. Currently, anyone earning below R211,596.30 per year is protected by this Act, so if an organisation wants to employ individuals who fall into this income category, they have to explain why the limited duration contract is relevant and applicable and ensure that the contract has clearly defined start and end dates.

Using fixed-term contracts to bypass the legislative requirements

Myburgh adds: “The reason the law is in place is to prevent companies from abusing employee trust, and using fixed-term contracts to bypass the legislative requirements of full-term employment such as holiday and sick leave. Employees who have consistently renewed fixed-term contracts without clearly defined end dates have the legal right to claim that they are employed full time, and can potentially receive the benefits and legal protections that accompany that status.”

Companies run the risk of paying the full term of a contract when terminating employees before the stated end date. This is an important consideration for the organisation and makes it essential that any fixed-term contract includes clauses for termination such as misconduct, retrenchment or operational requirements. These stipulations will allow the company to end a contract early within legal requirements.

“These stipulations can save the company a lot of time, money and hassle,” says Myburgh. “For example, if your contract specifies two years but the project ends in one year, the company will be liable to pay all the employees on this contract for the full two-year timeframe. The cost would be astronomical, so always include an escape clause.”

Fixed-term contracts have to be carefully managed to ensure that both company and employee are protected. For the employee, knowing that their contract dates are set in stone gives them security and a reliable source of income; for the business it ensures that staffing requirements are met within specific periods of time. Just make sure that every contract adheres to the letter of the law to minimise risk to business and employee.

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