Unemployment Insurance Fund; Productivity South Africa & CCMA on their Annual Performance Plans

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Labour

04 May 2017
Chairperson: Ms L Yengeni (ANC)
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Meeting Summary

Productivity South Africa (ProdSA) said it would have a significant role to play when the proposed minimum wage of R20 an hour came into force. Companies “with a negative attitude” were already cutting back on their employee complements in anticipation of the minimum wage implementation, and ProdSA would need to assist employers with a reduced work force to improve their productivity. While there would be provisions in the legislation for a reduction in the minimum wage -- meaning that companies with challenges could come to the Department of Labour (DoL) to be referred to ProdSA for assistance -- they would, however, need to disclose their finances accurately to the DoL as to why they could not pay the minimum wage. A Member of the Committee commented that exemptions would be difficult to obtain, and small businesses would suffer the most because they never got exemptions. Businesses were thus not employing, as they foresaw the troubles ahead.

ProdSA said it was collaborating with the Department of Trade and Industry (DTI) to increase its support for programmes aimed at sustainable employment and income growth, with monitoring and evaluation of the companies. It was finalising its strategic objectives from the ground up in order to enhance talks about how to produce productivity in the workplace and in communities. From a financial point of view, it had shown consistency in its budgets over the past three years.

Members asked how ProdSA could ensure that employment was maintained. Should it not be generating funds from the private sector by charging for training and lectures? What was ‘decent employment’ in terms of productivity? Why had the entity’s budgeted expenditure suddenly jumped? Why did it take four months to fill vacancies?

The Unemployment Insurance Fund (UIF) told the Committee that the e-filing that they employed was a technological advancement for the UIF, but as they did not drive the targets, its effectiveness depended on whether businesses were willing to use it. The online platform had made it easy for their advancement of technological support, and they were looking at whether this technology was giving value for money.

The UIF had maintained their targets and the newly registered employees per year had increased by 5 000. Their intention was to drive more companies to register for UIF. The percentage increase on revenue for 2017/18 was 7.2%, and as advised by the actuaries, the economy did not allow them to expect aggressive increases in UIF contributions. As a result, they had kept their percentage expectation at 6% for the next four years. Once different interventions had been approved, they expected to give a decision on claims within 20 working days, and once it had been approved it would then take ten working days for beneficiaries to get paid.

Members asked whether the UIF would be able to fund the payments and benefits, and be able to cater for the extra requirements, with the new UIF amendment that was coming up. It was asserted that in the various labour centres, the client services had been lacking, with long queues. The understaffed centres made it difficult for the submission of claims to be processed within the 15 days’ time parameter. How could the labour centres be capacitated to provide a more favourable experience for people who were in a difficult financial situation?

Meeting report

Productivity South Africa (ProdSA): Briefing

Mr Thobile Lamati, Director General, Department of Labour (DoL) welcomed the panel and noted an apology from the ProdSA chief executive officer (CEO), who was initially responsible for the continuation of presentations from yesterday. He was followed by the Chairperson, who stated that because ProdSA had included the annual report and were limited for time, they should focus on the annual performance plan (APP) and finance slides (see attached presentation).

Ms Rebecca Phalatse, Executive Manager, ProdSA, who presented on behalf of the CEO, outlined the entity’s value propositions, which emphasised on improving solutions by being involved in various life cycles of business. She also highlighted that its APP, with the various strategic outcome-oriented goals that ProdSA embraced, was in accordance with Section 32 of the Employment Services Act.
In developing its strategic outcomes, ProdSA had created strategic objectives and strategic programmes that delivered on its objectives. Its structure and establishment focused on the sustainable employment growth of people, and was currently funded by an appropriation from Parliament.
For programmes funded under Section 40A of the Employment Services Act, there was a head count of 73, but currently there were ten vacancies, while for programmes funded under Section 40B of the Act, there was a head count of 107, but 14 vacancies.
Ms Phalatse outlined the APP targets per strategic objective, indicating that the various programmes each played a role towards strengthening productivity. According to Section 40B of the Act, ProdSA was allowed to generate its own funding through consulting work. In terms of its corporate services performance, it was currently sitting on 68% against its APP goal of 75%. Where human resources (HR) was concerned, it was looking at having 80% completion of its training plan and a turnaround time of four months time to fill positions.
When it came to providing support to programmes aimed at sustainable employment and income growth, it was collaborating with the Department of Trade and Industry (DTI) to increase its support for such programmes, with monitoring and evaluation of the companies within five years. It was aiming at producing two statistical annual reports in order to increase productivity.
She concluded by stating that ProdSA was finalising its strategic objectives from the ground up in order to enhance talks about how to produce productivity in the workplace and in communities. It had spoken about the targets and pilot projects in Johannesburg on the four productivity courses, which the entity aimed to be accredited.
Mr Mxolisi Dlula, Finance Manager: ProdSA outlined that the entity had included the last three years of its budget in the last three slides in order to display their consistency and what they had been able to achieve from 2013/14 to 2019/20. The first three areas covering administration, productivity organisational solutions and value chain competitiveness would be funded by the grant from South African Revenue Services (SARS), as well as through ProdSA’s self-generating income which it was driving. The jump in the budget from 2015/16 to 2018/19 was due to the various initiatives it wanted to introduce towards moving forward in attracting and identifying workplace challenges, which it had not done well in the past.  Where turnaround solutions had been concerned in the past, it had not been able to achieve the desired budget, but it was confident it would achieve the desired budget based on the fact that in the last month it had been able to establish a good relationship with the Unemployment Insurance Fund (UIF), which would help them achieve the set out budget.
78% of ProdSA’s funding was from the DoL, the UIF and the DTI, and the remaining 22% was derived from the initiatives it had put in place. Initiatives had not been a strain, as from 2014 to 2016, it had moved from R40 million to R26 million, and then to R30 million in terms of self-raising initiatives. This had shown its drive to be sustainable, and there were other opportunities from Transnet, where it already had about R40 million in order to achieve their desired outcomes, and they were happy with future prospects and attaining what they desired.
Discussion

Mr M Bagraim (DA) said that with discussions on a minimum wage set to be introduced on 1 May 2018, this would put pressure on businesses to possibly be retrenching employees. As a result, that would place pressure on ProdSA, as employers would expect to see productivity since they were paying. Considering that the majority of people within the minimum wage bracket earned between R11 to R12 an hour, and this was to be increased to R20 an hour, it meant that businesses would have to produce almost double to sustain that amount on staff. How would ProdSA tackle this challenge that it would face next year?

If ProdSA did not need the 200 million to be financially sustainable, how would it make the private sector pay, since it should be raising money from the private sector through charging for training and lectures? The Department had been failing to retain jobs, and millions of jobs had been lost, so how would ProdSA ensure employment was retained? What was decent employment in terms of productivity? Training in workplace forums had been a complete failure, by all accounts, as they had not been supported. Why were they looking at that arena? In terms of the budget, there had been a jump in total expenses from R99 259 in 2015/16, to R191 662 in 2016/17. Why did it double in expenses, and not in production?

Mr I Ollis (DA) said that he was a great believer in ProdSA as an institution, as it was the cheapest way to create and save jobs per person, although he still needed to interrogate its details. In 2016/17, the year in which it did not get any funds from UIF, why was it that in the previous year, when it did get the money, the total expenses were R 99 million, but in the year when the DoL and the UIF cut off their funding, its expenses increased to a total of R191 million? How did that make sense? On the annual plan, had ProdSA reduced the number of indicators for the next financial year and if so, which ones? In its strategic plan, ProdSA provides the current numbers, but not the ones from the previous year -- could it indicate which target indicators had gone down?
Ms F Loliwe (ANC) asked why the filling of vacancies was taking as long as four months. What was its intention and long-term plan for expanding, considering that it was not in all the provinces?
ProdSA’s response
 

Ms Phalatse responded to the minimum wage question, saying they had a relationship with the DTI whereby they were given funds to create a workplace challenge programme in order to increase efficiency, and making sure enterprises were competitive and productive, as they could employ more. However, the programmes were taking 24 months, and as a result they had introduced the Kaizen (continuous improvement) model that would enable employment in a short space of time instead of the normal 24 months, resulting in an increase in productivity for small businesses and entities.

Regarding how would they make the private sector pay, on the same workplace challenge programme the government covered 65% of the costs and then the company paid the balance, so there was something they were getting in terms of revenue. Beyond that, they also did consulting work with regards to productivity for businesses, where they would impose a charge.
On the question of retaining jobs, their target as stipulated in the presentation was 7 500 saved jobs, and they had a relationship with the Commission for Conciliation, Mediation and Arbitration (CCMA) whereby they were able to intervene in the process. They acknowledged that their impact was not as strong, but they were working with various entities to help them reach their goals
Regarding decent employment, she said that there was a saying that if you were employment but still poor, that would be the epitome of a job that was not decent. Within the workplace challenge programmes, they also encouraged the sharing of gains with employees. ProdSA also came in to recommend against retrenchments, especially when levels of productivity rose and one looked at how the employees could gain.
ProdSA still focused on workplace forums because when they did a business productivity intervention, the results would be sustainable and could be monitored to increase productivity. The forums also allowed it to be seen that productivity was not just the government’s responsibility, but the employees’ as well. This was extremely important for companies in distress.
The APP reduction of indicators was based on their being outcomes based, instead process based indicators. She acknowledged that a fair point had been made with regards to the statistics that they had not included from the previous years, but said there had not been a decline.
Regarding the four months vacancy turnaround time, this covered the period from when the job was advertised and given time to be in the market, the assessments, till the selection process was made
With regard to spreading their wings to other provinces, ProdSA had a head office Midrand Johannesburg, and two regional offices in Cape Town and Durban. The Cape Town region was responsible for the Free State and Northern Cape, Durban looked after the Eastern Cape and Mpumalanga, and Johannesburg was responsible for North West, Limpopo and Gauteng.  ProdSA also worked closely with the Economic Development Department, labour centres, regional managers in provinces and Small Enterprise Development Agencies (SEDAs) to deliver on their mandate.
Mr Dlula said that before tapping into the financial questions, he felt that it was necessary to mention that they had had a meeting with their auditors at the end of December regarding financial sustainability. They had found three problematic issues which ProdSA had actually been working on prior to this, including capital, the payment of debtors for a short period of time, and for letters of demand whereby they had been able to collect R500 000 which, together with funding from the UIF, had put them in good standing so that their cash flow had been sorted out proactively.
With regard to the jump in the expenditure in the budget, this was based on the fact that at times when ProdSA tried to create a certain picture, they may miss the audience they were trying to attract and created a different story. He assured Members that the numbers had been accurate, and explained that the R117 million was to portray that even though they had not received the desired funding in 2016/17, based on their budget they were still confident about receiving the funding to move towards where they should have been. The numbers were a base for the rest of the numbers, moving forward.
Mr Lamati  added that the R97 million in the budget was the amount that was supposed to have been given to ProdSA. In the budget it was reflected as a revised estimate, where they should actually have reflected it as R24 million, as that was the amount that had actually been given to ProdSA. He acknowledged that they should have placed a column for the actual expenditure. 
Mr Ollis interrupted, saying that what the Director General had said was helpful, and he wanted to know what the total expenditure had been for the specific year that had finished.
Mr Lamati repeated that they should have put in an extra column, because ProdSA had budgeted R9.4 million for productivity solutions, but they had not reflected the actual expenditure.
Another point he wanted to comment on, was on the effects of the proposed minimum wage on employment, because there would be provisions in the legislation for a reduction in the minimum wage. There would be an exceptions provision, meaning that companies with challenges could come to the DoL to be referred to ProdSA for assistance. They would, however, need to disclose their finances accurately to the DoL as to why they could not pay the minimum wage.
On the question of decent employment, he added that as the DoL, they sought to have productive work where there was freedom, security and human dignity, because without productivity companies would not be able to pay employees a decent wage.
Mr Bagraim asked ProdSA to send Members of the Committee the missing column in order to make sense of the budget. He had a follow up question that referred to retaining jobs. The fact that ProdSA would be working with the CCMA was a good start, as they would be able to see the enormous pressure the CCMA faced, as referrals had almost doubled and as a result they were in trouble. In terms of Section 189a, mass retrenchments were growing and the CCMA’s was receiving ten to 15 of those a day. ProdSA could work with the CCMA to recommend to companies that they did not have to retrench so many people, and show them where to be productive.
With regards to decent employment, he commended them on their response and said that the International Labour Organisation (ILO) referred to decent jobs as legal jobs that followed all current legislation. The fact that the minimum wage legislation was changing meant that ProdSA needed to look into the matter. Exemptions were difficult to obtain, and small businesses would suffer the most because they never got exemptions. Businesses were thus not employing, as they foresaw the troubles ahead. ProdSA had not been able to convince the trade unions regarding the training schemes that would offset some of the displacements currently happening.
Mr Ollis had a follow up question on the revised budget column. What were the total expenses for the 2016/17 financial year, for clarification. He also understood that they were reducing their indicators, but he did not agree with this, because when things went down they would not be able to tell where everything went wrong.
Mr Lamati answered that the total expenditure of 2016/17 had been R95 071.
The Chairperson the presentation had not displayed comparative figures, and did not show the future plans with regard to what would happen to entities. When looking at the turnaround solutions, they had done well, but the decrease in that programme did not make sense. Modification of this programme was a problem, as that was the programme that contributed toward saving. 
Mr Lamati said that they had taken a decision with the Department to focus on the core indicators. When they had a draft, they felt that they should come to Parliament to present it first before it became final. He asked the Committee if they could come to present the APP and strategic plan draft around October/November. Moving forward, there should be a uniform line of communication with regards to plans to make the process smoother. With regards to obtaining exceptions, that had been a problem because there had been very few applications, which may have been due to their fractious relationship with employers. Regarding exceptions in the minimum wage legislation, ProdSA had set a period of 30 days, and would not place too much emphasis on administration, as small businesses would not be able to up their game. Lastly, if businesses retrenched because of what they anticipated, that was negative thinking, and ProdSA would like to sit down with them to rethink this type of behaviour and assist them with the challenges.

Unemployment Insurance Fund (UIF): Briefing
 

Mr Tebogo Maruping, Commissioner, DoL:UIF opened the presentation by stating that they had reviewed their targets to change people’s lives through an operational aspect. For example, the e-filing that they employed was a technological advancement for the UIF, but as they did not drive the targets, its effectiveness depended on whether businesses were willing to use it. The online platform had made it easy for their advancement of technological support, and they were looking at whether this technology was giving value for money.
On their targets for sound financial management, the actuaries have advised them to reduce the percentage return on investment to 2.5% for all the years from 2017/18, taking into consideration the effect of current economic conditions. They also capped the administration expenditure at 15%. Social responsibility investments were capped at 80% per year.
For improving service delivery, they had considered the pool of their beneficiaries, and had now broken them into various pools instead of just one, because they needed different treatment. They had also reduced the unemployment claim turnaround time from five weeks to 15 working days, and in five years’ time they expected to reduce the turnaround time to seven days.
In-service benefits for the employed had also been considered, because the time it took for them to receive documentation was much easier. This referred to the maternity illness and adoption benefits, and this had been reduced to five working days. With regards to deceased benefits, they commented that they would have complex issues, as there were different interventions with people who died with various wives, for example.
The days to process documents after receipt had been reduced to seven working days, and in five years they wanted to reduce it to two days. For new businesses to come into the country and register for certificates, they had set a target that they should give the registration certificates in two days, and over time would be able to do so in one day and also allow the companies around June/July to register online and print their certificates.
On improved compliance, the UIF had maintained their target and the newly registered employees per year had been increased by 5 000. Their intention was to drive more companies to register for UIF. The percentage increase on revenue for 2017/18 was 7.2%, and as advised by the actuaries, the economy did not allow them to expect aggressive increases in UIF contributions. As a result, they had kept their percentage expectation at 6% for the next four years. Once different interventions had been approved, they expected to give a decision on claims within 20 working days, and once it had been approved it would then take ten working days for them to get paid.
Ms Thembeka Puzi, Chief Financial Officer, UIF, said she would focus on the approved budget for 2017/18, which was also linked to the APP.
The Chairperson notified the UIF delegation that the Members did not have the remaining slides on the financial revenue and budget, and expressed her disappointment that they had missed important information on their slides. The UIF then sent around some of the packs they had as extras to the Members to share while they presented on the budget.
Ms Puzi apologized, and then said that in the approved budget for 2017/18, the UIF were looking at raising R28.8 billion, with the UIF contributions forming the major part of this amount. The contributions were collected through the Unemployment Insurance Contributions Act, where the SA Revenue Service (SARS) assisted in collections. The balance of revenue income was made up of investment income, which was expected to raise R9.6 billion in 2017/18.
On the 2017/18 labour activation scheme budget that was still being reviewed, they had budgeted R760 million for training schemes and the Public Service Association (PSA). They had also budgeted for various UIF benefits that amounted to R8.8 billion. They had also allocated a higher amount to unemployment than maternity, as this formed the major part of expenditure.
The administrative expenditure, which included compensation of employees, purchases of capital assets, and goods and services, came to a total of R3.1 billion, and the increases throughout the years had been from Treasury, which had assisted them.
Discussion
Mr Ollis asked that the presentation be sent to Members by tomorrow. It had been difficult to follow the budget, as the columns differed in units, which made it difficult to compare figures. He added that the decrease of indicators was not doing any good for comparison purposes. With the new UIF amendment that was coming up, had they considered whether the UIF would be able to fund the payments and benefits, and be able to cater for the extra requirements? Would they be able to provide those benefits?

Mr D America (DA) said that on the strategic plan he got the impression of a marginal improvement that led one to be impressed, but on the annual performance plan the outcome became blurry because in practice, in the various labour centres, the client services had been lacking, especially in the Bellville centre with long queues. The understaffed centres made it difficult for the submission of claims to be processed within the 15 days’ time parameter. How could one capacitate the labour centres to assist people with favourable experiences? For example, if a mother came with a baby to submit a claim, it should be better holistic experience. The fact that they were in dire poverty made them vulnerable, and the UIF owed it to them to give them a better service, and this should not only be on paper.

UIF’s Response
 

Mr Maruping responded on the clientele question, and said that they were introducing additional financial officers by the end of this quarter, as they aware of the labour centre issues. They had been working on how to improve their model and contact centres, and would start the project by the third quarter. In Johannesburg, the centres already owned their clients, and that was something that they wanted implemented in other centres. They had also completed phase one of the service providers to transform data centres for efficiency, and were moving to phase two in June/July, which would provide a much simpler version to decrease queues, and implement Wi-Fi in all labour centres. They were also looking at getting students from the labour activation programme to help people with the Wi-Fi and phones in these labour centres

Ms Puzi said the amendments were affordable, and the exercise had been looked at through a lens of ten years. They had come to the conclusion that it was a positive outcome, so the UIF would be able to afford the funding. In the mid-term review, they would also account for the amendments that only came in after the date.
The meeting was adjourned.

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