PAYROLL INSIGHT
Remuneration options for businesses expanding into South Africa
Sharon Tayfield, chief operations officer at Praxima Holdings (Pty) Ltd, outlines the options
W hen companies head-quartered in the USA, Europe, Middle East or Africa decide to establish a presence in South Africa, one of the first hurdles with regards to payroll/human resources (HR) is the structuring of the remuneration package contained in the offer of employment letter, and how that compares to the format employees are accustomed to receiving in the region. A decision needs to be made at this stage as to whether to align the South African employment contracts with the contracts in place in the rest of the world, or whether to have a contract which matches the standard in the region. Payroll professionals have an important part to play in these decisions, and therefore it is essential to have an understanding of what the norms are in South Africa, and what steps would need to be taken to assist employees in their understanding, if a decision is made to proceed with a global remuneration structure. It is worth noting that global companies approach this in a number of ways. I have worked with companies that begin with adopting the ‘norm’ in the region but then move towards a global standard a few years after establishing a presence in the region, as well as companies that immediately adopt the global standard.
The important point is that the payroll professional should have a good knowledge of the concepts, so as to assist employees irrespective of the standard that is adopted. ...companies then moved to a ‘cost to company package’ (CTC) as the basis for remuneration structures More than 25 years ago the standard South African employment contracts were drafted on what could be termed a ‘cost-plus’ basis or ‘basic salary plus benefits structure’. This translated to an employment contract that contained a cash component or salary, along with added benefits, which the employer would provide to the employee. (This is the common global standard.) However, a number of South Africa- based companies then moved to a ‘cost to company package’ (CTC) as the basis for remuneration structures. From the employer’s point of view, the CTC structure means that the finance department has better control over the financial cost of employment.
Anyone who has worked in South Africa will know that the cost of medical cover in the country is comparatively high, and that having private medical cover is imperative. The problem with the situation before CTC was that the finance department had no control over the gross cost of this particular benefit. Not only did employers have to deal with employees adding dependents to the medical schemes monthly, but they also had to deal with medical providers increasing premiums, often in excess of the general inflation rate. It is also worth noting that employers and their HR department were grappling with how to manage the challenge of a male employee possibly having more than one wife which, in some population groups in the region, is the norm. (The current President of South Africa, Jacob Zuma is a polygamist and has about twenty children, has married six times and currently has four wives on the state’s budget.) The payroll/HR department also faced the challenge that employees on the same grade and performing the same job often did not receive the same gross remuneration. The differences were caused by employees receiving different financial benefits as a result of the number of dependents they had, or the fact that
| Professional in Payroll, Pensions and Reward | September 2016 | Issue 23 32
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