Warning for employers in South Africa – including anyone hiring a domestic worker
The recent announcement by the Unemployment Insurance Fund (UIF) that it is cracking the whip on non-compliant companies serves as an important reminder for South African employers to ensure that they are sitting on the right side of the law.
This is outlined by Knowledge and Learning Lawyer at Bowmans South Africa, Chloë Loubser, who said that it is crucial for employers to ensure that they comply with UIF regulations or face some hefty repercussions.
“Employers have a number of obligations in terms of the Unemployment Insurance (UIA) and Unemployment Insurance Contributions (UICA) Act, and they need to come to the party, not only to avoid legal and financial repercussions and reputational risk but also to support their employees’ social security needs,” said Loubser.
“Failure to comply with the obligations in these laws may result in an employer’s employees being unable to claim the benefits that they would otherwise be entitled to, which can have significant consequences for their well-being,” she added.
The UIF, established under the UIA and UICA, aims to mitigate the effects of unemployment.
It offers short-term financial assistance to qualifying workers who are unemployed, sick, or on leave (maternity, parental, adoption, or commissioning parental). Dependents of deceased contributors may also be eligible for benefits.
Broadly, the legislation outlines that an employer must pay the UIF for an employee who works more than 24 hours a month.
Notably, this includes households that employ domestic workers. Recent surveys have shown that the vast majority of domestic workers are not signed up for UIF, leaving employers open to penalties.
In August 2024, UIF commissioner Teboho Maruping said that his team are targeting non-compliant employers who have either not registered with the UIF or those who have registered and are deducting contributions from their employees, but are not paying these over to the UIF for their beneficiaries.
According to the commissioner, over R100 million has been recouped in the last month from businesses not contributing to the fund – demonstrating their goal of bringing defaulting companies in line.
What are the requirements to be compliant?
The provisions of the UIA and the UICA apply to employers and their employees who work for the employer for at least 24 hours a month.
“Employees are required to contribute to the fund (contributions are deducted by the employer) and, provided that they meet the eligibility requirements for the particular benefit that they would like to claim and have credits available, they will then be paid out the prescribed benefits from the fund,” said Loubser.
The legal expert explained that employers have the following requirements:
- Registration:
Employers must register with the Department of Employment and Labour for UIF purposes and separately with SARS for UIF contributions as part of tax registration.
- Monthly Contributions:
Employers must deduct 1% of each employee’s remuneration (up to R17,712) and match this amount, totalling 2% of the employee’s remuneration.
For example, where an employee earns R20,000 per month, the employer must deduct R177.12 from the employee’s remuneration, and contribute an additional R177.12, meaning that the total amount paid by the employer to the UIF in respect of that employee is R354.24 per month.
Contributions must be paid by the 7th of each month to SARS or the Unemployment Insurance Commissioner, with late payments subject to penalties and interest.
- Reporting:
Employers must submit UI-19 forms with monthly declarations of any employee changes by the 7th of each month.
- Record-Keeping:
Accurate records of contributions and employee information must be maintained.
What is the potential fallout for non-compliance?
There are a number of consequences that may arise from non-compliance with the legislation.
Loubser explained that these include:
- Penalties and Interest:
Employers who fail to pay contributions on time may be subject to penalties of up to 10% of the unpaid amount and interest on late payments.
- Legal Liability:
Directors and shareholders involved in managing a company’s financial affairs may be held personally liable for payment of the amount of unpaid employee contributions, where those contributions have been deducted or withheld by the employing company but not paid over to SARS or the Unemployment Insurance Commissioner, as applicable.
They can also be held personally liable for any penalties that may be imposed in respect of those payments.
- Employee Claims:
Non-compliance by an employer can affect employees’ ability to claim benefits from the UIF, leading to potential legal disputes and reputational damage for the employer.
- Criminal Offences:
Failure to comply with certain provisions of the UIA and UICA may constitute a criminal offence, punishable by fines or imprisonment.
UIF being stretched
This crackdown comes amid the fund itself being stretched.
Unemployment in South Africa is steadily increasing, up from 32.9% in the first quarter (Q1) of 2024 to 33.5% in Q2 [42.6% expanded unemployment rate], the UIF is under pressure to reign in outstanding payments to service a growing demand for unemployment support.
“Looking at just July, we received between 80,000 and 100,000 applications in one month alone,” said the UIF commissioner.
Maruping said that while the UIF “has the funds for the people that are contributing,” it will likely not be able to stomach the increasing dependents as a result of South Africa’s worsening unemployment – hence the drive for a crackdown on non-compliance.
He said that the fund is continuing to visit companies that have registered and deducted contributions but not paid to the fund.
While the UIF has said that it can fund its paying beneficiaries, some beg to differ.
One person who has been unsuccessfully trying to claim told BusinessTech that “you are at your most vulnerable when you lose your job and need money urgently – [we] have paid UIF and are entitled to the money [but] I’ve been trying since last September to claim [but to no success].”
This is just one of numerous UIF woe stories, which has also seen its fair share of allegations of corruption and “systemic dysfunction.”
In hopes of improving efficiencies, the Department of Employment and Labour recently announced that it is unbundling the UIF and the Compensation Fund (CF) to make the two entities independent of the department.
Minister Nomakhosazana Meth said this was to ensure that the UIF and CF were stabilised, modernised and repurposed.
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