The Unemployment Insurance Fund (UIF)’s recent announcement of a crackdown on non-compliant companies is a critical reminder for South African employers to stay on the right side of the law.
Chloë Loubser, Knowledge and Learning Lawyer at Bowmans South Africa, emphasised the importance of employers ensuring compliance with UIF regulations to avoid facing severe consequences.
“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 Unemployment Insurance Act (UIA) and Unemployment Insurance Contributions Act (UICA), is designed to alleviate the impact of unemployment by providing short-term financial assistance to eligible workers who are unemployed, ill, or on leave (maternity, parental, adoption, or commissioning parental). Dependents of deceased contributors may also qualify for benefits.
The legislation requires employers to contribute to the UIF for any employee working more than 24 hours per month, including domestic workers. However, recent surveys reveal that a large number of domestic workers are not registered for UIF, exposing employers to potential penalties.
In August 2024, UIF Commissioner Teboho Maruping announced a focused effort to address non-compliant employers—those who have either failed to register with the UIF or are deducting contributions from employees but not submitting them to the UIF. Over the past month, the UIF has recovered more than R100 million from businesses that were not contributing, reflecting their commitment to ensuring compliance.
What are the requirements for compliance?
The UIA and UICA apply to employers and their employees who work at least 24 hours a month.
“Employees must contribute to the fund (with deductions made by the employer), and as long as they meet the eligibility criteria for the specific benefit they wish to claim and have sufficient credits, they will receive the prescribed benefits from the fund,” said Loubser.
Loubser further outlined the compliance requirements for employers:
Registration:
Employers are required to register with the Department of Employment and Labour for UIF purposes and separately with SARS for UIF contributions, as part of their tax registration.
Monthly Contributions:
Employers must deduct 1% of each employee’s remuneration (up to R17,712) and match that amount, for a total of 2% of the employee’s remuneration.
For example, if an employee earns R20,000 per month, the employer must deduct R177.12 from their salary and contribute an additional R177.12. The total monthly contribution to the UIF for that employee would be R354.24.
These contributions must be paid to SARS or the Unemployment Insurance Commissioner by the 7th of each month, with penalties and interest applied for late payments.
Reporting:
Employers must submit UI-19 forms with monthly declarations of any employee changes by the 7th of each month.
Record-Keeping:
Employers must maintain accurate records of contributions and employee information.
What are the potential consequences of non-compliance?
Several penalties may arise from failing to comply with UIF legislation. Loubser highlighted the following:
Penalties and Interest:
Late payment of contributions can result in penalties of up to 10% of the unpaid amount, along with interest on overdue payments.
Legal Liability:
Company directors and shareholders involved in managing finances can be held personally liable for unpaid employee contributions, especially when contributions have been deducted but not paid to SARS or the UIF. They can also be held liable for any penalties related to these unpaid amounts.
Employee Claims:
An employer’s non-compliance may hinder employees’ ability to claim UIF benefits, potentially leading to legal disputes and reputational damage for the employer.
Criminal Offences:
Failure to meet certain provisions of the UIA and UICA may result in criminal charges, with penalties ranging from fines to imprisonment.
UIF Under Strain
This crackdown comes as the UIF itself is under significant pressure.
With South Africa’s unemployment rate rising from 32.9% in Q1 2024 to 33.5% in Q2 (42.6% expanded unemployment rate), the UIF is struggling to keep up with the growing demand for unemployment benefits.
“In July alone, we received between 80,000 and 100,000 applications,” said UIF Commissioner Teboho Maruping. While the UIF has funds for its active contributors, it may struggle to handle the increasing number of dependents as unemployment worsens, which is driving the current crackdown on non-compliance.
The UIF has been visiting companies that have registered and deducted contributions but failed to submit them to the fund.
However, concerns persist about the fund’s ability to deliver. One claimant, who has been trying to access benefits since last September, told BusinessTech, “When you lose your job, you’re at your most vulnerable and need money urgently. We’ve paid UIF and are entitled to it, but I still haven’t received my claim.”
This is just one of many stories highlighting the UIF’s operational challenges, including allegations of corruption and inefficiency.
To address these issues, the Department of Employment and Labour recently announced plans to separate the UIF and the Compensation Fund (CF) to make them independent from the department. Minister Nomakhosazana Meth stated that this move is aimed at stabilising, modernising, and restructuring both entities for improved efficiency.
Source: BusinessTech, Seth Thorne, 2024
