Draft Unemployment Insurance Bill: briefing

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Meeting Summary

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Meeting report


12 June 2000

Documents handed out:
Briefing - Department of Labour (attached to end of this minute)
Draft Unemployment Insurance Bill
Unemployment Insurance Contributions Bill

The Committee was briefed by Mr Shadrack Mkhonto, the Unemployment Insurance Fund Commissioner, on the background to, the intentions of, and the potential benefits of the new Unemployment Insurance Bill. Mr Mkhonto said that the bill would accomplish the following: it would extend coverage, eliminate discrimination, decrease the ways in which people could escape making payments, and increase the professionalism and the accountability of the management of the fund. Concern was expressed that there was a need for clarity over whether or not the fund would become a separate institution, or would remain part of the Department of Labour.

Mr Mkhonto, the Unemployment Insurance Fund (UIF) Commissioner, said that they were currently still negotiating over the bill, as indeed they were required to do, in terms of the National Economic, Development and Labour Council (NEDLAC) requirements. He introduced his presentation by saying that he would speak on where they had come from, what their intentions were, and what the benefits of the new legislation would be.

Five years ago, the previous Minister of Labour had said that the Unemployment Insurance Act of 1966 would be amended because of some of the difficulties which workers in South Africa had experienced historically. The new Minister of Labour had since taken it upon himself to carry on this work, due to that fact that the previous Minister was unable to complete it. The target that had been set was that the bill would be announced in the first parliamentary phase of next year, i.e. on 1 April 2001.

The 1966 Act's predecessor was the 1946 Act and, in fact, the last time the Act was amended was in 1966. In 1979 there had been a review of the arrangements and the most important of the changes that was made then was that the government would no longer contribute 50% to the fund which it had up till then done. From then on, it would only contribute a maximum of R7m. This was at a time when the fund was to start looking after the interests of the majority of the unemployed in South Africa. The fund had reserves to sustain itself since the 1950's and as a result new benefits were added at that time, such as maternity benefits and other healthcare benefits.

The withdrawal of government's assistance in 1979 represented a fundamental problem for the fund. In 1984 the fund went to the state to ask for assistance for the first time. Then again in 1989, an actuarial evaluation determined that the fund should receive assistance or cease to continue operating. Again in 1995, the fund knocked on government's door for assistance.

The fund currently looked after high-risk profile workers and therefore also the most needy. The fund excluded low-risk workers with stable earnings and by virtue of that, it was not sustainable without assistance from the state. Furthermore, the fund was an insurance fund and as such, needed to be run on sound insurance and financial principles. However, the fund was currently run under a government department, which according to stipulations of the Public Service Commission, could not hire people under the conditions of flexibility, which were needed.

The SARS (South African Revenue Service) was granted greater flexibility in its hiring procedures and as a result it was beginning to reap the benefits. The unemployment insurance fund needed similar flexibility too. The fund currently excluded the provisions for external auditing as well as for advance planning.

The fund was found to discriminate against women by virtue of the fact that women who drew maternity benefits could not draw unemployment benefits at the same time. Also, domestic workers were excluded, who were predominantly black, thereby constituting discrimination against blacks, in that respect. The Minister made a public announcement in March, announcing that he wanted a complete overhaul of the bill, not just an amendment to it.

Initial Discussion
An ANC member of the committee asked, in view of this, what would happen with respect to outstanding claims in the former homelands that were put in before any of these changes were made?

Mr Mkhonto replied that the department had done all it could to resolve these problems. The department had already said that anyone who wanted to make claims could come forward and, through doing this, he believed it would addressed the backlog. There had been some problematic areas such as in the North West Province where the Sifelana Employee Benefits Organisation (SEBO) had given the department continued problems. In all areas though, the people concerned were addressed through the media and through the Government Gazette.

There were many cheques that were written out, for example in the Transkei to the value of R12.6m, which were withdrawn because no one had come forward to claim these funds. In many cases people had not been forthcoming, which was maybe due to some of them having passed away or not knowing about their entitlements but the department felt it had done enough to address these situations

The Chairperson said that Mr Mkhonto had indicated that in 1995 the government was requested to assist the fund. Where did this funding come from and what about the funds necessary to address future claims?

Mr Mkhonto replied that the current law bound the fund to make payments provided the claimant could prove a history of employment, even if an employer did not contribute. It currently paid out first, then tried to chase up the funds. There needed to be better insurance and financial principles applied in the management of the fund, notwithstanding the fact that the fund represented a social safety net. The collection and monitoring systems needed to be strengthened and a new database system set-up in order to improve the fund. The Department was currently addressing these requirements.

Another member expressed the concern that the people in Transkei did not know about how to collect the funds and in fact, that it was available. The office in East London was also not very accessible to the people in Transkei. The Chairperson added that the department should make available a document with an index in, which could be distributed to the members, who could in turn give to their constituents. This would go some way in addressing this problem.

Another member asked what was being done with regard to people who were in casual employment, some of whom had been so employed for eight years? Mr Mkhonto replied that this would be covered in the next part of his presentation.

Continuation of Presentation
Mr Mkhonto said that the first thing that needed to be addressed were the definitions of employer, employee and redundancies. The definitions that were used for each of these had to be the same as was used by the SARS, because the department wanted to use that agency to administer the collections for the fund. High-income earners and domestic workers would be covered by the new bill. The bill had to be finalised within 18 months and it was envisaged that that target would indeed be met. People who worked less than 24 hours per month would be excluded and this provision should cover the question on casual labour, which was raised earlier.

Public servants were excluded from the fund for a number of reasons. The main one being that they enjoyed a better severance package than those in the private sector. If there were, however, any who wanted to be included, there was a government bargaining chamber which make provision for any such people. Learnerships were excluded, such as the cases where people were doing in-service training. Families who had adopted children were included in the provisions of the fund and males as well as females would be made provision for under the terms outlining adoption benefits. Also, if women collected maternity benefits and then returned to work and subsequently lost their jobs, they would also be able to collect unemployment benefits from the fund.

A new model would be introduced which would enable the Department to manage the fund better. There would be a new capping of benefits to 28 days in every four-year cycle. People could not therefore, draw continuously from the fund.

The Chairperson asked that the prescription period of six months be explained in the light of this? Mr Mkhonto said that currently one could draw benefits for nine months after a person had lost their job and the new bill would reduce this to six months. The waiting period for dependants to claim benefits on behalf of their parents would similarly be reduced from three years to six months.

New provisions would also stipulate that if a person had been to an office they would either have to be paid or be given a written explanation of why they were not paid benefits if that was indeed the case. In other words, people should no longer be given the run-around. Benefits could no longer be attached by court orders and had to be used for what they were intended. A problem had been identified in that people were previously continuing to collect UIF benefits even after they had been re-employed. This problem would be addressed.

The Chairperson asked what would be done about such examples where the new employment was in the informal sector? Mr Mkhonto acknowledged that, that could be a problem but that the introduction of an employer-employee database could address this issue and that the main contributors and drawers of benefits would be covered.

An ANC member asked why people only got partial payments on some occasions even when they had to furnish extensive financial information? Mr Mkhonto replied that the Department was required to get financial information from people and that many people had in fact learned to put down their expenditures as being in excess of their earnings as a trick to get the maximum pay-out from the fund. In such cases it was not even possible to reclaim such amounts through the justice system, as the amounts were often written off by the Justice Department. People claiming legitimate benefits should receive their money within 20 days though.

There was a proposal to tax benefits where these were subject to taxation. Currently, all benefits were exempt from taxation. The taxation of benefits would therefore happen under the new bill, but it was envisaged that it would be an insignificant number who would so attract tax. A contributor who committed certain crimes, such as collecting benefits fraudulently, would subsequently be denied the collection of benefits for a period of twelve years. The bill stated that the period would be twelve months, but it should actually read twelve 12 years.

People who were unhappy with UIF decisions on payments could use the SARS dispute resolution mechanisms. In cases of non-compliance, people would first be educated as to the law before enforcement measures were applied. A defaulting employer however, would have to pay 200% of the amount defaulted on, plus interest at the ruling rate plus the payment of any benefits claimed by the beneficiary. In Germany, such employers were closed down but in South Africa there were a number of small employers who were possibly ignorant of the bill. They nonetheless had to pay and these regulations were therefore necessary.

The chairman of the board would be the commissioner of the fund. On the unemployment insurance fund board there would be the additional representation of NGO's, as currently only labour, business and government were represented. With respect to the management of the fund, the department intended to comply with the stipulations of the Public Finance Management Act (PFMA). The fund would not be involved in any schemes to reduce unemployment, as there were other government programmes to address this. The Director-General of the fund would have to go through certain procedures to raise new funds. The Director-General could not make unilateral decisions to use overdrafts, for example.

Actuarial evaluations would have to be carried out. Whether the fund was in deficit or surplus, would have to be made public every year. The Minister of Labour would have to be consultative in all decisions on the fund, particularly in respect of new regulations on collecting for the fund, which would have to be made in consultation with the Minister of Finance. The department would introduce partnerships in the carrying out of inspections of employers and their payment of contributions.

In summary, the bill would accomplish the following: it would extend coverage, eliminate discrimination, decrease the ways in which people could escape making payments, and increase the professionalism and the accountability of the management of the fund.

Discussion Continued
The chairperson asked how the fund was going to be run within the directives of the PFMA? How was it that the fund would seem to obviously be an institution by itself and be run as such, yet it was continually referred to in respect of its Director-General, which indicated that it would be run within the department? The chairperson said that as a result, he was not sure whether it would actually be an institution or an appendage of the department. This was a very serious issue in terms of the PFMA. Another ANC member asked who would be responsible in the case of payments being made out because of the poor judgement of officials?

Mr Mkhonto said that with respect to the state having to pay for the non- performance of officials, it related also to the question the chair asked about the autonomy of the institution. This was a difficult question. Mr Mkhonto acknowledged that, yes, it was correct to say that there would be no autonomy of the institution. There would be a commissioner in charge of the fund but there would also be the Department of Labour making the actual payments. There was no sanction that could be applied to individual employees of the department, except via the Director-General.

Furthermore there were no clear accountability roles, and indeed the problems of discipline within the government were well known. It was, for instance, even difficult to deal with a government employee, who it was known, had stolen from the department, and the suspension with pay of such individuals was insufficient. The provisions of the PFMA would address this to some extent. There were currently inspections being carried out and circulars on management issues were sent out from time to time but there was nevertheless still a problem. The department had embarked on an aggressive programme of computerisation, which would also help to substantially minimise some of these problems, but what was needed was good people, who were adequately paid.

Dr P Nel (NNP) noted that the three important definitions referred to at the beginning of the presentation, i.e. employer, employee and remuneration, merely referred to a schedule of the Income Tax Act. What were the definitions actually being referred to here? The chairperson indicated that these definitions were spelled out elsewhere but he allowed Mr Mkhonto to reply too. Mr Mkhonto said that the Department was aligning itself with the SARS Act. In terms of that Act, any employer who was outside of the tax threshold, would not qualify as an employer for tax purposes, but for UIF purposes, they would be considered employers.

The meeting adjourned.

Appendix 1:

Chapter 1
Definitions, Purpose and Scope
· Sections 1,2 & 3 of this chapter deals with the definitions, the object/purpose of this Bill and all aspects of coverage. In particular, the definitions of employer, employee and remuneration are now in line with the definitions in the Income Tax Act (1962) as amended.
· The Bill proposes the inclusion of high income earners and domestic workers but excludes the following:-
· those working less than 24 hrs per month
· Public Servants
· Employees employed in terms of a learnership agreement

Chapter 2
Claiming of Benefits
· Section 4-28 proposes the establishment of rights to all types of benefits, calculation of benefits, the duration of entitlement and procedures for dealing with disputes relating to payment and non-payment of benefits.
· The Bill further proposes the de-linking of maternity benefits with other benefits.
· The Bill proposes the introduction of a graduated benefit schedule ranging from 38% for higher income groups to 60% for lower paid employees.
· The Bill further proposes the capping of benefit days at 238 days in any four year cycle and decreases the prescription period to six months for all types of benefits.
· The Bill proposes payment of benefits to beneficiaries who had miscarriages or stillborn babies.
· Discrimination in terms of gender for adoption has been removed
· The waiting period for a child to apply for dependents benefits has been reduced to six months instead of three years currently.
· The Bill places an obligation on the part of the claims officer to comply with the requirements of administrative justice
· Benefits paid in terms of this Bill cannot be assigned, attached by court order or set off against any debt, any benefits paid in error must be paid within 30 days
· The Bill further proposes that the benefits paid should be subjected to normal PAYE
· The Bill proposes the suspension of a contributor's right to benefit for up to 12 months if the contributor commits certain offences
· Section 29 proposes the use of CCMA procedures by the beneficiary for disputes related to the payment or non-payment of benefits

Chapter 3
· Section 30-34 proposes a stringent compliance and enforcement regime similar to that contained under the BCEA. It gives greater powers to Labour Court and proposes the levying of heavy fines and penalties for non-compliance
· An employer who defaults on payment of contributions will be liable to a penalty of 200% of the unpaid contributions plus interest at the ruling rate.
· The Bill further proposes that such a defaulting employer be held liable for the payment of benefits to the disadvantaged beneficiary.
· The Bill further proposes that the DG may apply to the labour court for a compliance order to be made an order of the Labour Court.
· The provisions of the Income Tax Act relating to administration, objections recovery, etc., will apply, with regard to contributions paid or payable.

Chapters 4&5

· Section 35-37 deals with the designation of the UIC to administer the Fund and the appointment of claims officers to assist the UIC to process claims made in terms of the Bill.
· Section 38-44 proposes the establishment of the Unemployment Insurance Board, its role and functions.
· The Bill proposes the expansion of representation on UI Board to include NGO and state representatives.

Chapter 6
Financial Management
· Section 45 and 46 deal with the establishment of the Fund and its application and excludes payment to schemes to combat unemployment.
· Section 47 deals with raising of funds by means of overdraft facilities at a financial institution by the DG.
· The Bill proposes a new financial year for the Fund commencing on 1 April each year and ends 31 March of the following year.
· The Bill further proposes that financial decisions must be informed by an actuarial input in the form of an actual actuarial report prepared by an Actuary.
· The DG is obliged to report the financial condition of the Fund should there be a surplus of deficit to the Minister.
· The bill proposes compliance with the PFMA with DG as the Accounting Officer and that the financials of the fund must be audited.

Chapter 7
· Section 54 deals with the powers of the Minister to issue regulations and notices after consultation with the UI Board.
· Section 55 defines the procedures to be followed by the Minister when issuing regulations which involves announcement in the government gazette and a period of 1 month should be allowed for comments.
· The Bill proposes that any regulation affecting state revenue or expenditure may only be issued or amended with the concurrence of the Minister of Finance.

Chapter 8
General Provisions
Section 56-72 deals with general provisions and covers the following areas:-
creation and maintenance of a contributor database, recovery of losses, disclosures of information, offences, prohibited conduct and the jurisdiction of the Labour Court and other courts.
The Bill further proposes the appointment of agents and designation of agency offices to serve as employment offices.
The Bill gives the DG powers to borrow money for the Fund in terms of PFMA.
The Bill proposes that a report by the DG must be tabled in parliament by the Minister within 30 days of receipt by the Minister.


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