Advice and Opinion

The overlooked risks associated with hiring unregistered building contractors in SA

As much as addressing SA’s dire unemployment rate is critical, building industry role players recommend that businesses and members of the public tread carefully when securing the services of unregistered contractors.

From a company owner’s perspective, being a registered entity means that they are obliged to meet quality standards, construction regulations and customer expectations, all of which promote higher standards of workmanship, safety, and project delivery.

However, findings by the Building Industry Bargaining Council (BIBC) indicate that businesses not registered with the organisation do not have the basic infrastructure in place to deliver on quality outcomes. In addition, they often miss deadlines and budget targets.

The BIBC’s council spokesperson for business, Danie Hattingh, says the council has seen many examples of work having to be redone to address these quality concerns.

The direct result of this is that the contractor responsible has narrower profit margins or has eroded margins due to the penalties imposed by the ‘giver of work’. The delays that result from having to redo work have financial implications for all parties caught up in this unfortunate scenario.”

The impact on unregistered employees is equally severe.

While unregistered employment accounts for 38% of all jobs in South Africa’s construction sector, of which the building industry forms a large part, these workers are not typically protected by labour laws that govern minimum wage requirements, overtime pay and workplace safety regulations.

Unregistered employers also frequently exploit labour to undercut competitors.

Unregistered labourers may not receive the negotiated minimum benefits applicable in the industry and receive whatever the non-compliant employer arbitrarily decides. These arrangements also often lack stability and security with workers facing uncertainty about future income and job prospects.

The BIBC’s council spokesperson for labour, Luyanda Mgqamqo, points out that these employees often encounter irregular working hours, fluctuating income, and reliance on temporary work.

Of particular concern to the BIBC is that these employees and their dependents are also not protected in the event of death and disability,” he says.

Conversely, employees registered with compliant employers receive daily contributions towards their annual (holiday) leave, sick leave, retirement fund and bonus.

By way of example, the BIBC collected and paid out more than R200-million in leave pay and bonuses at the end of 2023 – funds that went directly into the pockets of employees whose registered employers had contributed on their behalf throughout the year.

Another positive spinoff was that contributions were made towards more than 28 000 registered building industry employees for future funeral, death, and disability benefits.

It has become evident that employees registered with the BIBC are usually part of stable teams in which skills are transferable and complementary in nature. This generally results in a higher standard of work as individuals who operate within these teams are more responsible and accountable.

Hattingh emphasises that failure to address the gaps that exist between registered and unregistered parties can be detrimental to both the industry and economy.

Unregistered labour can compete unfairly with registered contractors by circumventing regulations and standards. This may hinder government tax collection, infrastructure development and efforts to promote sustainable housing solutions.

Where both the ‘giver of work’ and the contractor have a culture of non-compliance, the impact on sustainable and decent employment is even more pronounced,” he adds.

There are positive developments, however.

Collective bargaining, for example, is ensuring all employers in the industry compete on unique selling points such as excellent work and quick turnaround times stemming from skilled and stable teams.

Here, the BIBC has been instrumental in driving the transition from unregistered to registered employment by establishing standards, negotiating agreements, managing compliance, offering support services, and promoting dialogue and collaboration among stakeholders.

Hattingh says when engaging with a building contractor as a ‘giver of work’, it is important that the firm is properly registered with the BIBC as this provides an assurance that a business is not enabling labour exploitation.

Businesses have a critical role to play in promoting registered employment by ensuring that only employers who adhere to legal requirements are contracted to do work in the building industry.”

’Givers of work’ can visit the BIBC website to see whether the contractor is registered with the BIBC and is compliant. Our experience is that when employers are compliant with the BIBC there is a higher likelihood that they are compliant in other areas, such as adherence to health and safety and unemployment insurance regulations.”