Unemployment Insurance Fund Bill: briefing

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Meeting report

Labour and Public Enterprises Select Committee

LABOUR AND PUBLIC ENTERPRISES SELECT COMMITTEE
5 November 2001
UNEMPLOYMENT INSURANCE BILL: BRIEFING

Chairperson:
Mr S Fenyane

Documents Handed Out:
Unemployment Insurance Bill [B3B - 2001]

Relevant document:
Cosatu press statement on the Bill (see Appendix)

SUMMARY
The Committee had an informal briefing on the Bill as the Bill had not yet been formally passed by the National Assembly. The biggest issue that came to the fore was the current exclusion of public servants under the Unemployment Insurance Fund (UIF) and whether or not this exclusion will persist under the new Bill. There will be a nine month investigation into this aspect before a decision is made. Another important change is the imposition of a much harsher penalty provision and the use of the SARS in the collection of the monies. One of the overall motives behind the new Bill was to improve the administration of the Fund and to limit fraud perpetrated by employers and employees alike.

MINUTES
Mr Khumalo (Department of Labour) explained that the development of the current Bill had started in 1994 when the new Government came into power and needed to change the laws of the past, including the unemployment insurance legislation.

The initial feeling was that there were benefits under unemployment insurance that should be taken out such as an adoption benefit and death benefit. These were just two of the more obvious examples of benefits that do not properly belong under the heading of unemployment insurance. Mr Khumalo explained that this had been difficult to achieve because the Department of Social Development had not yet finished its task in providing for these items elsewhere. Despite this, it was necessary to proceed with the Bill and it has been on the agenda since 1997.

- One of the main issues introduced in the new Bill was that of 'coverage'. Under the present Act individuals earning up to or below R 97 188 annually are covered. Anyone earning more than this, was simply not covered. Under the Bill however everyone is covered up to the R 97 000 mark even if you earn more than R 97 000 annually.
- Another big issue currently being debated is the continued exclusion of public servants under the unemployment insurance scheme.
- Domestic workers are now included
- Another issue was the extension of the benefit period. Under the present Act there is six months of benefit time over a four year period. Under the new Bill there are 238 benefit days, which equates to about 8 months. The position under the new Bill is thus superior.
- A maternity benefit has also been introduced as under the present Act women are punished for staying away from work on maternity leave. This happens because when women stay away they use up their benefit days. Under the Bill the days taken off for maternity reasons will not be set off against benefit days. These women will also be paid on a sliding scale for days when they stay out of work.
- Under the new Bill the power of the claims officers to refuse or exclude certain claims had now been removed.
- The requirement under the new Bill is that you have to be employed for thirteen weeks within the last 52 week period. If you meet this requirement, then your 238 days accrue to you and you can claim them.
- An electronic database is to be created. This database would contain information of employees and employers who are contributors. When people claim, it would then be easier to check if they are contributors. The converse would also be true: employees would be able to phone up the office and ask if their employers were indeed making contributions on their behalf. This was important given that some unscrupulous employers deduct money from employee salaries under the guise of paying it in, but then pocket this money for themselves. The solution to this is to create the database and conduct business as an ordinary insurance company. When anyone defaults on payment, the person will be notified and informed that failure to pay immediately would result in that person not being covered.

Ms B Dlulane (ANC) asked why a database was only being constructed now instead of it being there from the beginning.

Mr Khumalo explained that when it was first conceived the fund had been based on trust and it was felt that there was no need to monitor or enforce payment into the fund. This was because through only a very small UIF contribution, employer and employee alike stood to benefit. Now the position was different and one even saw employers applying for blue UIF cards well after an employee had left.

Ms C Botha (DP) said she understood that the money was deducted from the salaries of employees but where did the obligation to pay the deduction into the fund lie and what happened if this was not done.

Mr Khumalo explained that under the present Act there was a penalty to be paid. This penalty could however only be applied for a maximum of three years. This would mean that if an employer has not made contributions for five years, the fund would only be able to charge for three of those years, subject to the provision that interest cannot be added. A 10% penalty surcharge could be added to the amount. Despite this penalty measure however, some employers ignore the need to pay and take a chance as they would much rather pay the three years back-pay plus the 10% penalty charge.

- In terms of the new Bill the retrospective amount payable will be calculated for the entire period of non-payment. In addition to this interest on the outstanding amount will be charged at the prime rate of interest. Then in addition to this there will be a maximum of a 200% penalty surcharge on the outstanding payments. In this manner the fund is attempting to make payment rather than non-payment the best option for employers.

- SARS had agreed to collect the money, a situation that the Department of Labour was very happy about, given the SARS's high rate of collection. In terms of the enforcement of these mechanisms, the Department would use the Income Tax Act, which would also mean that the Department could have property attached should people fail to pay up.

- Also changed was the position around dispute resolution. The new Bill provides that if you were not satisfied with the decision of the claims officer then you could appeal the decision. This appeal would be taken to the Appeal Committee that would sit in Pretoria. There would also no longer be a provincial officers.

- There was also currently no requirement relating to evaluation. The new Bill would provide that an evaluation was required once a year.

- Importantly in the new Bill the term 'child' was more favorably defined. The current Act dictates that anyone over the age of 17 was no longer a child. The new Bill however provided that up to the age of 21, if the person was dependent upon the deceased, then that person would still be able to qualify as a child under the Bill.

- The definition of employee in the new Bill was reached through discussions with the SARS as was the definition of employer.

- Also discussed with the SARS was the definition of 'earnings' or 'remuneration'. The current difficulty was that certain types of remuneration presently fell outside of the definition of remuneration, especially allowances. Employers opted to pay their employees mainly in terms of allowances with only a small part qualifying as a basic salary. The problem was that the contribution payable to the fund was calculated with reference to the basic salary only and not anything else.

- There was also a definition of seasonal worker in the new Bill.

The rest of the changes were mostly technical in nature and of little substantive concern.

In summing up, Mr Khumalo noted that the biggest issue was the whether or not public workers would be included under the new Bill. There was currently a study under way to determine what impact the inclusion of these individuals would have. This investigation would take nine months to complete.

Discussion
Mr Fenyane asked for clarification around the sliding scale for maternity leave.

Mr Khumalo explained that in terms of the sliding scale women staying away from work would get paid a certain percentage of their daily earnings. In terms of the present Act women on maternity leave are all paid 45% of their daily income. Under the new Bill this percentage will depend on how much the woman earns. If she is a low income earner then she could be paid up to 60% of her income while high income earners could be paid as little as 38% of their income.

Ms Dlulane asked what the position was for people fell outside the application of the Act and new Bill, that is, people who worked less than three months a year.

Mr Khumalo replied that these people were the part-time workers or 'temps'. The problem with this sector was that there were too many of them, moving around too much. The administrative burden and costs far outweighed the cost of having to pay them. Managing, rather than actually paying these people, was the problem.

Mr Fenyane was concerned with the exclusion of Public Servants. He was under the impression that Public Servants were excluded under the Bill because their employer, namely the South African Government, could not afford to pay these contributions. He asked if this would not be problematic in terms of example.

Mr Khumalo said that this was indeed the reason and further that it was problematic. This was because exclusion in this manner, based on finance, might be unconstitutional. This was very bad for the fund, because if you want other employers to pay, then you cannot exclude the State from paying. If the State does not have to pay, then why should anyone else? This was what the nine month investigation would be looking at. He added that if looked at properly, it was possible to include public servants without placing an added burden on the fiscus.

Dr P Nel (NNP) asked why public servants had been excluded from the beginning. Ms Botha pointed out that there were other big employers who could ill afford to pay this money. Despite this, they did not enjoy the same kind of exemption which the State had. Mr Fenyane added that the attempt by the State to exclude public servants could work against the goal of the State - because if the State did not have to pay, other employers might also refuse to pay.

Mr Khumalo answered that in the past State employees were excluded because people in government jobs enjoyed an elevated degree of job security as they were supposedly employed for life. These people would therefore seldom be fired or retrenched and as such there was no need to include them in such a scheme. The State pension scheme was also different to the ordinary one. Under normal circumstances, one's pension scheme is paid in 50% shares by employer and employee. However under the State system, the State pays two thirds and the employee pays only one third. This also mitigated for the view that a unemployment scheme was not necessary.

Mr Fenyane pointed out that the provision was against the right to equality in the Constitution. He said hopefully this untenable position would endure for only nine more months and the investigation would identify that the clause is indeed unconstitutional.

Dr Nel asked whether the fourteen-day period in Clause 20(2) had to be fourteen successive days or whether it could be fourteen days in a month or something to that effect.

Mr Khumalo explained that what this clause was trying to provide was that the fund would bear the cost when the employee stayed away long enough for this to be a financial burden on the employer. This would mean that it would have to be fourteen successive days, absolutely without a break. For anything shorter than the fourteen day period, the cost of the employee's absence would have to be borne by the employer.

Mr Fenyane said that if this was the intention, it should be made clearer in the clause.

Ms Botha asked if it would be possible to have some other form of enforcement method apart from the penalty. She suggested the provision of a time period within which to pay.

Mr Khumalo said that at present the fund had very little capacity to check who was paying and to follow up on those who were not. The best manner to get the funds would thus be to impose strict sanctions that would motivate people to pay.

Ms Botha referred to Clause 10(3) and asked whether such a reserve fund could not be used to provide improved benefits.

Mr Khumalo replied that the surplus funds could not be used to improve benefits because that surplus might be in respect of one year only. This however did not mean that there would be a surplus the following year. To the contrary there might be a shortfall in funds. Using this money to improve benefits would be a hasty move. According to international practice, the fund should have a reserve fund of five to six months worth of payments. The surplus would be used to improve benefits only if the surplus was a trend.

Regarding financial reporting in Clause 11(3)(f), Ms Botha asked why the fund was able to go into overdraft and capable of giving advances.

Mr Khumalo replied that the fund was indeed capable of having an overdraft. This was necessary because in terms of the Act, the fund had to pay any benefits that an individual was entitled to. The question whether the fund had money or not was irrelevant. Mr Khumalo was however unsure about the position relating to the giving of loans, saying that he was of the opinion that the fund could not lend money.

Ms Botha pointed out that no provision was made for gender representivity on the UIF Board. She said this would need to be addressed but added that this could be done by NEDLAC.

Mr Khumalo told the Committee that the UIF did indeed get its recommendations, relating to the composition of the board, from NEDLAC. He said that there had recently been a call to provide for a community component on the board. He was however unsure of the position relating to gender representivity and agreed to take the matter up with NEDLAC.

The meeting was adjourned.

Appendix:
Press statement issued by the Congress of South African Trade Unions.

Unemployment Insurance Bill
The National Assembly passed the Unemployment Insurance Bill yesterday. The Bill is due to be processed by the NCOP Select Committee next Tuesday. The UI Bill deals with unemployment insurance reforms which are of major importance for hundreds of thousands of beneficiaries, and contains some progressive innovations.

Despite all the efforts of civil society organisations, however, to address a range of problems in the Bill, the final product is nevertheless unsatisfactory.

The UI Bill aims to make some important reforms to the existing UIF, and extend coverage to various categories of workers who have been excluded in the past. This is critically important in the current context of high structural unemployment, where the UIF, together with the Old Age Pension, is the main form of social security which working people rely on.

The main progressive innovations contained in the Bill include: A progressive scale of UIF benefits which ensures that low income earners get a higher proportion of their income than high income earners;The extension of coverage to high income earners, which together with the above point, entrenches the principle of solidarity and equity and brings greater stability to the Fund;The 'delinking' of Unemployment benefits from Maternity benefits, meaning that pregnant women can claim maternity benefits from the UIF, without affecting their rights to claim unemployment benefits;The benefit period has been extended, with unemployed workers now being able to claim 8 months UIF benefits, as compared to the previous situation where they were limited to 6 months. However, beneficiaries are limited to claiming 8 months in a 4-year cycle, whereas before they were able to claim 6 months in a one-year cycle.It exempts UIF benefits from taxation.

Despite these progressive proposed reforms, serious problems arose with the Unemployment Insurance Bill (UI Bill) when it was tabled in Parliament in March 2001. Most important of these were:1. Exclusion of domestic and seasonal workers from the Fund;2. Exclusion of public sector workers;3. Limitation of maternity benefits;4. Lack of financial guarantees for the Fund;5. The failure of government to table the Contributions Bill.

Strong mobilisation around the five issues listed above, by COSATU and other civil society organisations, led the Parliamentary Portfolio Committee on Labour to effectively suspend deliberations earlier this year, to allow for the necessary discussions, and for the Department to redraft problematic elements of the Bill. It was expected that after these discussions had taken place, the Department would table its amendments in Parliament during the second session of Parliament, between May and June. In the event, the Department only tabled its proposals in the third session, during October.

The Department report back to the Parliamentary Committee in October showed little progress on the issues identified by the Committee as problem areas. In some respects, however, the Committee and civil society were able to intervene to correct this situation. In other areas the problems remain unresolved. The result of these final deliberations by the Portfolio Committee, as reflected in the final version of the Bill (subject to ratification by the NCOP) is summarised below.

Areas where significant progress has been made, include:Domesticworkers: the Department attempted to reintroduce a proposal similar to one previously rejected by the Committee, which had effectively made the inclusion of domestic workers dependant on the outcome of an investigation, and contained no clear time frame for their inclusion. A last minute intervention by COSATU and the ANC resulted in this formulation being rejected and alternative legal wording being adopted which provides that the Fund will effectively cover domestic workers one year after the Act is promulgated. The investigation to be appointed by the Minister, which must be completed within the year, will focus on the mechanisms for collection, and other issues related to the logistics of administering the Fund for domestic workers. This is an important breakthrough for domestic workers, who will for the first time in our history have access to unemployment benefits.

Financingof the Fund: the Nedlac agreement had specified that government would settle the debt of the UIF, underwrite the fund, and make good any shortfalls in the Fund. COSATU strongly raised the need for the Nedlac agreement to be honoured, and for the necessary amendments to be made to the Bill. As a result, slight amendments were made, and an undertaking made that the statements in the memorandum (which is not formally part of the Bill) were incorrect and did not reflect government policy. The amended Bill allows the Minister of Labour to 'request' the Minister of Finance to make an allocation in terms of an emergency provision of the Public Finance Management Act, to "cover any deficit in the fund". While an improvement, this still does not oblige the government to make good the deficit, unlike the legal drafting proposed by COSATU, since the Minister of Finance has the discretion to refuse the request. This is especially problematic, given the financial crisis facing the Fund. Despite these concerns the Department of Labour has indicated that government intends to address the deficit, and that R605 million has already been made available to this end. COSATU will monitor the situation and hold them to the undertakings made in the Parliamentary process, and discussions with civil society.

Progress, however tentative, registered in the above areas is contrasted by the effective deadlock reached in other areas between the Committee and Civil society organisations and the Department. The most important of these were the following:Exclusionof public servants: the Bill passed by the Committee continues to exclude public servants at provincial and national level from the UIF. While the Committee supported the view of COSATU and others that public servants should be included, they were unable to reach agreement with the Departments of Labour and Finance. A compromise was proposed by labour to the Committee. In a formal letter from the COSATU General Secretary to the Chair, COSATU proposed that public servants be covered, but government exempted from paying the employer contribution, since government would already be guaranteeing the Fund. This proposal won general support in the Committee, but was not taken forward. The Committee in its report noted that it sympathised with the view that they should be included. The Committee report also recommended that the Minister of Labour conduct an investigation within 9 months and report to the Committee on the financial implications and viability of including public servants. While carrying some weight, this instruction is not legally enforceable. COSATU will have to consider its options, including the possibility of launching a Constitutional Court challenge given the discriminatory character of this exclusion.

MaternityBenefits: while women will be able to claim maternity benefits without affecting their rights to claim unemployment benefits, civil society organisations raised serious concerns about the low level of benefits which women will receive, even though they are only entitled to benefits for four months (as opposed to the normal period of 8 months for unemployment benefits). Maternity benefits will be pegged on a sliding scale depending on the level of the contributor's income: at a maximum of 60% for those earning R150 per month, down to 30% for those earning R10 000 per month. Further those receiving some maternity benefit from their employer would not be entitled to draw any maternity benefits from the UIF, if the employer maternity benefit was equal to or greater than the benefit set out in the sliding scale. This is in contrast to the agreement by the Alliance leadership in August 1997 that all women should be entitled to four months paid maternity leave, at a level 'substantially greater' than the 45% previously provided by the UIF. In addition, those excluded from the UIF, including public servants and, for a limited period, domestics would not qualify for these benefits. The Portfolio Committee report noted these concerns, also requested the Minister of Labour, in consultation with the CGE, to conduct an investigation within 9 months and report on the financial implications of full coverage, especially for the most vulnerable workers.

UI Contributions Bill: the splitting of the original Bill into two Bills - the UI Bill and the UI Contributions Bill has created a number of problems. This has been worsened by the fact that the UI Contributions Bill- the so-called 'Money Bill'- had not been tabled by the time the Labour Portfolio Committee had processed the UI Bill. This is like trying to build a house without being able to construct the walls, since the architecture of these Bills is so interlinked. Thus for example, COSATU's compromise proposal on public servants would have required amendments to the UI Contributions Bill, since it involved exempting the employer contribution- it was difficult to discuss this since the UI Contributions Bill had not been tabled. Despite the strong views expressed by inter alia, business and labour in Parliament in March, with some support from the Committee, that the Department of Finance needed to expedite the tabling of the UI Contributions Bill, this still had not been done by October, when the UI Bill was considered. The strong impression created was that the Department of Finance was using the UI Contributions Bill as a lever- by withholding it, they could bring pressure to bear on issues with fiscal implications, such as the inclusion of public servants, or the formulation dealing with financing of the Fund. This impression was reinforced by the process of discussions around deadlock issues, as well as the fact that the tabling of the UI Contributions Bill was held back until the processing of the UI Bill: at the time of writing the tabling of the UI Contributions Bill in the Finance Committee was imminent, without the Labour Portfolio Committee ever having sight of it, even in draft form.

Because the UI Contributions Bill is a Money Bill, the Finance Committee will not be empowered to amend it.

Therefore, if there are any major problems with the Bill, the processing of the reforms to the UIF will be further delayed until next year, as the Bill would have to be sent back to Cabinet. The more likely scenario is that the UI Contributions Bill will be processed with little debate, as has been the case with a number of other Money Bills.

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