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LABOUR PORTFOLIO COMMITTEE
19 October 2001
UNEMPLOYMENT INSURANCE BILL: DELIBERATIONS
Chairperson: Mr S Manie
Unemployment Insurance Bill [B3-2001]
Proposed Amendments to Unemployment Insurance Bill (see Appendix 1)
Memorandum by the South African Revenue Services on the definitions of the Unemployment Insurance Bill (see Appendix 2)
The Department of Labour briefed the Committee on the proposed amendments to the Unemployment Insurance Fund Bill.
Mr S Mkhonto (UIF Commissioner: Department of Labour) outlined the amendments made to the Bill after suggestions made by Members during the last meeting.
Clause 1: Definitions
The definition of a child had been amended to state: "â€¦a child means any person under the age of 18 years and includes any person under the age of 21 who is a scholar and was wholly dependent on the deceased contributor."
Mr Clelland (DP) asked the Commissioner to define the term "deceased contributor". In responding, the Commissioner very briefly stated that it referred to a child who had means of support other than his contributor.
Mr Clelland asked if this meant that a person of the age of 17 years who was working would also be entitled to benefits. Mr Kettledas replied by stating that the definition dealt exclusively with the situation where a person was entitled to a claim upon the death of the contributor. The definition aimed only to explain primarily who in a situation of dependency would be entitled to dependant benefits as a result of the contributor's death.
Mr Mapalala (ANC) disagreed with the view and was of the opinion that irrespective of whether or not the contributor was deceased, the child should be entitled to benefits.
The Chair answered by saying that the normal definition of the word "child" did not apply in this instance, and, therefore, it should not be confused with the definition as per the Bill which related or had been applied to a specific context. He added, that the question of the deceased was, therefore, relevant to Clause 1 of the Bill.
Mr Clelland (DP) asked if a child could also be a contributor. The Chair responded that the word "child", with reference to this Bill, is relevant to beneficiaries, and not to persons eligible for employment.
The Commissioner recommended that to avoid further confusion the term "dependent child" be used.
Mr Blaas (NNP) asked if the words "any person" suggested or included blood relatives. Mr Kettledas as well as the Chair stated that "any person" should be amended to "a person" as defined in the Basic Conditions of Employment Act.
The Commissioner continued and recommended the definition of "employee" as contained in the Bill be amended to state the following "â€¦an employee means any natural person who receives any remuneration or to whom any remuneration accrues." No objections were raised by Committee members to this substitution at which point the Commissioner proceeded to deal with the definition of "employer".
Briefly, the Commissioner stated that the definition would be amended to state the following: "employer means any person acting in a fiduciary capacity who pays or is liable to pay to any person any amount by way of remuneration, and any person responsible for the payment of any amount by way of remuneration to any person under the provisions of any law or out of public funds, excluding any person who is not acting as a principal."
Ms Thabethe (ANC) commented that this definition could not easily be understood by the ordinary layperson. Mr Kettledas advised that the definition had been taken verbatim from the Tax Act and therefore could not be amended.
Ms Thabethe once again posed the question of an ordinary person was to understand and comprehend this definition. The Chair agreed with Mr Kettledas that the definition had been derived from the Tax Act and could not be amended, and that the definition remain as is.
The Commissioner then dealt with the revised definition of the word "remuneration" which now meant "â€¦any amount of income which is paid or is payable in cash to any person by way of any salary, leave pay, allowance, wage, overtime pay, bonus, fee, emolument or stipend in respect of services rendered." No objections were raised to this amendment.
In dealing with the definition of "seasonal worker", the Commissioner recommended that this definition be dispensed with in its entirety. The reason for this was that it would lead to unintended consequences. Presently, the Basic Conditions of Employment Act allows any person who has worked for 24 hours in a month, to claim UIF. If the present definition of "seasonal worker" is applied, it would aggravate their right to UIF. The Chair agreed with this view.
Clause 3: Application of this Act
Clause 3(2) dealt with the Minister's investigative responsibilities regarding domestic and seasonal workers under the application of this Act. The new clause proposed by the Department of Labour reads as follows:
The Minister must:
- make regulations regarding the mechanisms and systems for administration of contributions and benefits for domestic and seasonal workers.
- issue the regulations contemplated in (a) within a period of 1 year from the date of commencement of this Act.
- facilitate public participation on the regulations contemplated in (a) in accordance with Section 4(1); (2) and (3) of the Promotion of Administrative Justice Act (Act No.3 of 2000).
- table the regulations contemplated in (a) before Parliament.
The Chair disagreed with this new provision saying that it was not the responsibility of the Minister to initiate the investigation. Mr Kettledas agreed. The Commissioner stated that the proposal would be amended to facilitate this suggestion.
Mr Clelland (DP) informed that the new clause referred to domestic workers as per the definition, however, the same had not been done for seasonal workers. No defintion is provided for seasonal workers. The Chair advised that the definition of domestic worker would adequately cover and accommodate seasonal workers. However, Mr Clelland (DP) disagreed, saying that the exclusion of a definition of seasonal workers could lead to practical problems. The Chair then agreed and asked the Department if by excluding a definition of "seasonal workers" the intention was to say that they are not an important category to consider?
Mr Kettledas stated that a seasonal worker as defined in agriculture referred to any person who worked for a period of 4 to 6 months per year; whereas a domestic worker referred to any natural person who received benefits or remuneration for employment.
The Chair interjected and advised that Mr Kettledas failed to see that the exclusion of the definition of seasonal workers would create practical administrative problems.
The Chair asked that Clause 3 of the Bill be flagged for deliberation at a later date.
Clause 10: Surplus and deficit in the Fund
The Commissioner stated that concerns raised at the previous meetings focused on the fact that the clause failed to provide for a guarantee. Clause 10(4) would now read as follows: "â€¦the Minister may request the Minister of Finance to adjust the national budget in the manner contemplated in Section 30 and Section 16 of the Public Finance Management Act, 1999 (Act No.1 of 1999) in order to cover any deficit in the Fund."
The Chair asked if it had not been agreed at the previous meeting that the word "may" be substituted with "shall". The Commissioner replied that after deliberation with the State Law Advisors on this issue, it was advised that it would have no legal consequences if the word "may" remained. The Chair disputed this and asked that the Commissioner once more obtain clarity thereon from the State Law Advisors. It was agreed that area be revisited at a later stage.
Clause 11 and Clause 12
No objections were raised to these amendments.
Clause 13: Calculation of benefits
The Commissioner suggested that the words "dividing the monthly remuneration by 30, 33" be substituted to state: "multiplying the monthly remuneration by 12 and dividing it by 365." No objections were raised to this amendment.
Clause 14: Contributor not entitled to benefits under certain circumstances
The Commissioner noted that "or disability grant" was now omitted. No comments were raised on this issue.
Subclause 14(d) was new. It would account for those persons entitled to benefits which are not assessible to them as a result of packages negotiated with their respective trade unions. The effect of this was to restrict anyone from accessing benefits such as retrenchment packages from employers. For example, if a person was injured in the course and scope of his employment and has received benefits from the Compensation Fund, he cannot also receive benefits from the Injury Fund. In addition any period contemplated in 14(a)(iv) shall not exceed 6 months.
The Chair asked that in a case where a person was retrenched regardless of the benefits, were they not then prejudicing people by placing a period on it. The Commissioner answered by saying that the intention was not to restrict benefits. Retrenchment packages are paid to compensate for loss of income. Therefore, if a person is paid a retrenchment package equivalent to three months salary, he would only be entitled to access UIF after the three month period expires. The Chair disagreed with this view.
Mr Thabethe (ANC) stated that, in essence, the Department has no right to limit money paid by an employee to the Fund.
Mr Moonsamy (ANC) said that the Department of Labour failed to provide sufficient motivation why an employee should have no right and title to their own money which they had paid to the Fund.
Mr Clelland (DP) asked how in terms of 14(4)(a) one would determine when funds had been exhausted.
Mr Kettledas replied that where a person has received benefits calculated to the rate received weekly, once this has been exhausted, only then would a person be entitled to access UIF benefits. The UIF benefit is an income loss benefit, and therefore, 14(4)(a) in no way restricts benefits. Logically, it would make sense to access UIF benefits once the income has been depleted.
Ms Thabethe stated that UIF is not a grant to be given to the unemployed. Instead, it was a Fund to which employees themselves had contributed and, therefore, they should rightfully be entitled to the money irrespective of the benefits afforded to them by the employer.
The Chair requested that this Clause be flagged for discussion at a later date. However, Mr Kettledas disagreed and advised that the provision of the clause had been adequately explained and, further, that to date no objection had been raised publicly.
The Chair in noting the remarks of Mr Kettledas ordered that the provision be redrafted and that the clause be flagged. The Chair re-iterated to the Department of Labour that they had no right, authority or power to limit a persons right to his own benefits.
Clause 15 Calculation of period of unemployment
This was to be amended to state: "For purposes of this Part, any period of unemployment must be calculated from the date of unemployment." The Commissioner advised that the words "application in terms of Section 17" was to be substituted with the word "unemployment".
Various objections were raised but Mr Kettledas explained to Committee members that a vast difference existed between the date on which one becomes unemployed and the date on which the application for unemployment is lodged.
Clause 16: Right to Unemployment Benefits
The Commissioner stated that concern had been raised at the last meeting that certain persons had been excluded from the definition. The new provision aimed to include such people.
Mr Clelland (DP) remarked that at the previous meeting it had been agreed that the words "termination of the general operations of laws" would be included. Mr Kettledas was of the opinion that the new draft was clear and concise and did not require the facilitation of these words.
Mr Mapalala (ANC) asked why the 'reason for unemployment' specifically excluded persons who were constructively dismissed. And what was the difference between Clause 16(i) and 16(iii)? According to him, they meant one and the same thing. The Commissioner agreed that the words "constructive dismissal" would be deleted. As regards Clause 16(i) and 16(iii), the Commissioner advised that these had been included at the request of members at the public hearings.
The Chair agreed with Mr Mapalala's (ANC) view that the content of Clause 16(i) and 16(iii) were similar. He recommended that the Clause be redrafted to incorporate the provisions of both Clause 16(i) and 16(iii). The Commissioner agreed that this would be done.
Clause 18: Payment of Unemployment Benefits
Mr Clelland (DP) asked if the words "without good cause" was left to the discretion of the Claims Officer and what was meant by the words "refuses to accept available work".
The Chair agreed and illustrated this viewpoint by asking if a person had been trained as a teacher, is the person now required to do gardening because it is available work?
Mr Kettledas advised that this was not the aim of the clause and that perhaps the Chair had misinterpreted its contents. The idea behind this clause was that placement services and employment agencies would employ persons in a position they trained for, alternatively that people would be offered training in a particular field.
The Chair disputed the opinion of Mr Kettledas and informed that no reference had been made to the above in the clause. He added that the term as expressed in the clause made no reference to appropriate work or work of a similar profile.
In answer to Mr Mapalala (ANC) asking what determines "good reason", Mr Kettledas said that if a party gives a reason which it believes is valid, but it is not accepted, such party can then implement the mechanism of appealing this decision.
The Chair remarked that an ignorant person had no idea that such a mechanism was afforded to them. He asked that the Department of Labour re-investigate and research the words "without good reason" and "refuses to accept available work".
Clause 19: Determination of period of illness
This amendment raised no concerns amongst members.
Clause 20: Right to illness benefits
The Commissioner informed that 20(1)(a) is to be deleted in its entirety. On a request from the Chair as to the reason for this, no response was provided by the Commissioner. The Chair suggested that this clause be flagged pending the Commissioner obtaining the reason for this deletion.
Clause 21 and Clause 22
No objections were raised to these amendments.
Clause 24 and Clause 25
Mr Sitole (ANC) asked if the words "miscarriage" and "confinement" in S24(1) and S24(5) respectively could be defined. Mr Kettledas stated that on birth, a medical certificate was issued as to the type of birth - be it a still birth, light birth, etc.
The Chair suggested that the wording be substituted as he felt that it was a gender sensitive issue. Mr Clelland (DP) agreed with this opinion.
All parties were in agreement with regards to the amendment.
Clause 30: Right to dependant's benefits
In addition to "spouse", the words "or life partner". The Chair agreed with the substitution and felt that it adequately covered persons who for example, had been married according to Muslim rights.
Mr Kettledas remarked that this terminology had been used to designate a person one had shared one's life with.
As regards the remaining amendment to Clause 30, the Chair was not in agreement and asked that it to be flagged.
Clause 31 and Clause 32
These amendments were consequential and therefore needed no explanation. The Chair agreed.
Clause 35: Recovery of benefits paid in error
The Commissioner advised that the aim was to incorporate measures which a Claims Officer had to comply with if a benefit had been paid in error and was now required to recover from the beneficiary.
At this point the meeting had to be adjourned as members of the Department of Labour who had to had to catch flight. In concluding, the Cahirperson urged the Commissioner and his task team that a final draft be made available to Committee members by no later than 24 October 2001.
The meeting was adjourned.
AMENDMENTS PROPOSED: UNEMPLOYMENT INSURANCE BILL [B3-2001]
1. On page 5, after line 11 to insert the following definition:
"Child" means any person under the age of 18 years and includes any person under the age of 21 who is a scholar and was wholly dependent on the deceased contributor.
2. On page 5, from line 30, to omit the definition of "employer" and to substitute:
"Employee" means any natural person who receives any remuneration or to whom any remuneration accrues;
3. On page 5, from line 36, to omit the definition of "employer" and to substitute:
"Employer: means any person acting in a fiduciary capacity who pays or is liable to pay to any person any amount by way of remuneration, and any person responsible for the payment of any amount by way of remuneration to any person under the provisions of any law or out of public funds, excluding any person who is not acting as a principal.
4. On page 6, from line 10, to omit the definition of "remuneration" and to substitute:
5. "Remuneration" means" any amount of income which is paid or is payable in cash to any person by way of any salary, leave pay, allowance, wage, overtime pay, bonus, fee, emolument or stipend in respect of services rendered.
6. "Seasonal worker" means any person who is employed by an employer for an aggregate period of at least four months over a 12 month period with the same employer.
DoL proposes to omit the definition of seasonal worker due to the fact that it limits the right of workers to access UIF coverage in the following manner:
1. BCEA covers any employee who works 24 hours or more than a month irrespective of any Period of employment in a year with a particular employer whilst the current definition
2. Extends coverage to those who work an average of at least 3 to 4 months.
Application of the Act
On page 6 line 44 to omit Subsection(e)
On page 6 line 45 to replace Section 3(2) with a new clause
S3 (2)The Minister must
a. make regulations regarding the mechanisms and systems for administration of contributions and benefits for domestic and seasonal workers
b. issue the regulations contemplated in (a) within a period of one year from the date of commencement of this Act
c. facilitate public participation on the regulations contemplated in (a) in accordance with Section 4 (1)(2) and (3) of the Promotion of A4ministrative Justice Act (Act No.3 of 2000)
d. table the regulations contemplated in (a) before Parliament
S3 (3) Application of this act to domestic and seasonal workers will take effect upon promulgation of the regulations contemplated in (a).
1. On page 8 line 31 after "section" add "16 or"
2. On page 8, in line 31, after "1999" to insert ", in order to cover any deficit in the Fund".
1. On page 9, in line 35, to omit "dividing the monthly remuneration by 30,33" and to substitute "multiplying the monthly remuneration by 12 and dividing it by 365".
2. On page 9, in line 36, to omit "dividing the weekly remuneration by 365" and to substitute "multiplying the weekly remuneration by 52
1. On page 10, from line 6, to omit "or disability grant".
2. On page 10 to insert new subsection 14(d) and to read;
14(d) Any period contemplated in Subsection 14(a)(iv) shall not exceed six months
1. On page 10, in line 29, to omit "application in terms of section 17" and to substitute "unemployment".
1.On page 10, from line 37, to omit paragraph (a) and to substitute:
(a) the reason for the unemployment is-
(i) the termination of the contributor's contract of employment by the employer of that contributor
(ii) the dismissal of the contributor, as defined by section 186 of the Labour Relations Act, 1995 (Act No.66 of 1995), excluding constructive dismissal of that contributor;
(iii) the termination of the contributor's employment due to the ending of the fixed term of contract, or
(iv) insolvency in terms of the provisions of the Insolvency Act, 1 936 (Act No.24 of 1936).
1. On page 11, in line 42, after "contributor" to insert "receives unemployment benefits and".
2. Amend section 18(1), 23(a), 26, 29 and 32 to omit 'claims officer" to substitute "applicant at the time of application"
1. On page 11, in line 49, to omit "or receives" up to and including "illness" in line 50 and to substitute "contributor".
1. On page 12, from line 10 to omit paragraph (a).
2. On page 12, in line 15, after "Chapter" to insert "or adoption benefits In terms of Part E of this Chapter; or".
1. On page 12, in line 22, 10 omit "in each week of" and to substitute "for".
2. On page 12, in line 23, 25 and 43 to omit "weekly".
1. On page 12, in line 43, to omit "weekly".
1. On page 13, in line 9, to omit "in each week of" and to substitute "for".
2. On page 13, in line 10, to omit "weekly."
1. On page 13, in line 34, to omit "weekly".
1. On page 14, in line 6, to omit "in each week of" and substitute "for".
2. On page 14, in lines 7,10, 26 and 52, to omit "weekly".
3. On page 14, from line 5 to omit "maternity" and substitute "adoption"
1. On page 14, in line 26, to omit "weekly".
On page 14 line 36 to omit "claims officer" and to substitute "applicant at the time of application"
1. On page 14, in line 49, after "spouse" to insert "or life partner".
2. On page 14, in line 50, after 'spouse" to insert "or life partner.
3. On page 14, in line 52, to omit "weekly" wherever it occurs.
4. On page 14, from line 55, to omit subsection (4) and to substitute:
(4) "A dependant is not entitled to receive benefits under this Part if that dependant has received any monies from whatever source as a result of the contributor's death, except that the dependant shall be entitled to receive benefits once such monies have been exhausted at a rate equal to the usual remuneration of the deceased contributor, which rate shall be determined from a certificate of service issued under section 42 of the Basic Conditions of Employment Act, 1997 (Act No.75 of 1997), whilst that contributor was employed with that employer".
1. On page 15, in line 14, to omit "weekly".
On page 15 line 25 to omit "claims officer" and to substitute "applicant at the time of application"
1. On page 15, from line 43, to omit subsections (2) and (3) and to substitute:
(2) "If the Commissioner determines that a person contemplated in subsection (1) has been paid benefits in error or in excess of the person's entitlement, the Commissioner must, within eighteen months of the date of erroneous payment, make a written demand for repayment from that person
(3) A written demand contemplated in subsection (2) must include-
(a) a statement of the amount paid in error;
(b) an explanation of why that person was ineligible to receive the funds; and
(c) evidence that the person to whom the demand is addressed actually received the funds.
The persons contemplated in subsection (1) must refund the amount within 90 days of the written demand.
1. Clause to be replaced.
1. That the following be a new Clause:
Disputes relating to payment or non-payment of benefits
37. (1) A person who is entitled to benefits in terms of this Act may appeal to the appeals committee of the Board if that person is aggrieved by a decision oh
(a) the Commissioner to suspend such person's right to benefits or
(b) a claims officer relating to the payment or non-payment of benefits.
(2) A person who is dissatisfied with the decision of the appeals committee may refer the matter for arbitration to the COMA.
On page 18 line 5 add (iii) "policies for minimising unemployment and"
On page 18 line 8 add (iv) "the creation of schemes to alleviate the effects of unemployment"
1. On page 1 8, in line 22, to omit "four": and to substitute "three".
2. On page 18, in line 23, to omit "four": and to substitute "three".
3. On page 1 8, in line 24 to omit "and" and to insert the following paragraph:
(c) three members must be nominated by NEDLAC to represent organizations of community and development interests; and
4. On page 18, in line 25, to omit "four": and to substitute "three".
1. On page 18, in line 50, after "Board" to insert", which must include an appeals committee".
1. On page 19, in line 33, to omit Department of Finance" and to substitute "National Treasury".
1. On page 20, after line 48, to add the following subsection:
(3) (a) In order to determine the payment of benefits in terms of this Act, the
Commissioner may access any information on a database of the State that contains
information regarding social security.
(b) For the purposes of paragraph (a) the Commissioner must co-operate with other State institutions to link their respective databases.
1. On page 24, in line 27,omit 'this section" to insert, 69".
1 That the following be a new clause to follow clause 68:
Persons regarded as contributors for purposes of Act
69. (1) The Minister may, after receipt of an application in a prescribed form and with the concurrence of the Board, by notice in the Gazette, declare that as from a date specified in the notice any specified class of persons, or any person employed in any specified business or section of a business or in any specified area, must be regarded as contributors for purposes of this Act.
(2) The procedure referred to in section 55(1) applies with the necessary changes to a notice issued under subsection (1)
UNEMPLOYMENT INSURANCE BILL: DEFINITIONS OF 'EMPLOYER', 'EMPLOYEE' AND 'REMUNERATION'
The Unemployment Insurance Bill deals with the administrative side of the unemployment insurance system, i.e. the establishment of the Unemployment Insurance Fund and the determination and payment of benefits.
The Contributions Bill, on the other hand, deals with the collection of the unemployment insurance contributions from employers. In terms of this Bill, SARS will be responsible for the administration of the provisions thereof and the collection of the bulk of the contributions. The UI Commissioner will collect the contributions from employers who are not registered with SARS.
The basis for the calculation of the contributions is, to a large extent, based on the PAYE system. This was the basis on which it was agreed that SARS would be prepared to collect the contributions, as this would minimise the compliance burden on both business and SARS and limit the changes that would be required to SARS's existing systems.
The remuneration on which the contribution will be calculated is, therefore, determined with reference to the definition of 'remuneration' for PAYE purposes. There are, however, certain amounts that will be excluded, such as pensions, amounts paid on termination of service, annuities, etc. The reason for these exclusions is that these amounts do not reflect amounts payable in the normal course of employment and should also not be taken into account for purposes of determination of any benefit payable by the fund in the case of termination of employment.
Definition of 'employee'
The definition of "employee" for purposes of the Fourth Schedule to the Income Tax Act, 1962, includes inter alia any person (natural persons, companies and trusts) who receives remuneration. This definition may also include persons who are not employees in the traditional sense, for example, persons who work on a freelance basis.
For purposes of the UI Contributions Bill, the term "employee" will, however, be limited to natural persons only, as the unemployment insurance system does not apply in respect of trusts and companies. An "employee" will, therefore, be defined as "a natural person who receives any remuneration".
Any person who is not an "independent contractor" for the purposes of the Fourth Schedule is regarded as an employee. The concept of an "independent contractor" differs from the concept used in the Labour laws. Where a person, for example, works fixed hours or receives regular payments, that person will be regarded as an employee for purposes of the Fourth Schedule and will, therefore, also be liable to make the UI contributions. These types of employees will, however, not be entitled to any benefits in terms of the Unemployment Insurance Bill, as they may be regarded as independent contractors for purposes of the Labour laws and are, therefore, not employees.
The definitions in the Unemployment Insurance Bill and the Unemployment Insurance Contributions Bill need to be aligned to ensure that a person who contributes will also be entitled to the benefits and vice versa.
In the Unemployment Insurance Bill which was tabled in Parliament, an 'employee' means "an 'employee' as defined in the Labour Relations Act, 1995, and includes an employee as contemplated in paragraphs (a) and (b) of the definition of employee in the Fourth Schedule to the Income Tax Act, 1962.".
An employee is defined in the Labour Relations Act, 1995 (Act No. 66 of 1995), asÂ¾
any person, excluding an independent contractor, who works for another person or for the State and who receives, or is entitled to receive, any remuneration; and
any other person who in any manner assists in carrying on or conducting the business of an employer.
It is assumed that it is the intention that "remuneration" in that definition refers to that as defined in the Labour Relations Act, 1995, which means "any payment in money or in kind, or both in money and in kind, made or owing to any person in return for that person working for any other person, including the State".
Definition of "remuneration"
As mentioned above, the Contributions Bill is largely based on the PAYE system. The employee's contributions are determined at 1 per cent of his or her remuneration and the employer's contribution is an amount equal to the contribution of the employee.
There are, however, certain amounts which are included in the definition of "remuneration" for PAYE purposes that must be excluded for the UI contribution purposes, such as annuities and pensions, i.e. amounts which do not reflect compensation for services rendered. The reason for this exclusion is that the benefits, which may be claimed by an employee whose employment is terminated, are based on the contributions made by that employee. The principle behind this is that the Unemployment Insurance Fund compensates such an employee for the loss of his or her employment income.
The Unemployment Insurance Commissioner is also of the view that commissions must be excluded from remuneration for purposes of the calculation of the contributions. This may have some inequitable results as it may happen that the remuneration of a person who is a full-time permanent employee consists solely of commission. He or she will, therefore, not be required to contribute and he or she will, therefore, not be entitled to claim. These persons will, therefore, not enjoy the benefits under the system if their employment is terminated.
The current definition proposed in the Amendments to the Unemployment Insurance Bill, i.e. "any payment in money or in kind, or both in money and in kind, made to any person in return for services rendered by that person to the person making the payment" may present some practical difficulties. This definition is extremely wide and includes, for example, amounts such as a person's full travelling allowance or entertainment allowance, while it does not take into account the amount of that allowance actually expended by the employer in carrying out his or her duties. Furthermore, it is not clear how, for example, residential accommodation and other benefits provided by an employer to the employee are to be valued for purposes of determining the amount of the remuneration.
Bearing in mind that the UI Bill and the UI Contributions Bill deal with two opposite sides of the same system, i.e. the contribution to be made by an employee on the one hand and the benefits which may be claimed by that employee on the other, it is essential that the definitions in these Bills need to be aligned.
It cannot be expected from a person to contribute on the one hand, and then deny that person any benefits on the other, or base a person's contribution on his or her remuneration calculated in one manner, while his or her claim is based on a different concept of "remuneration". The purpose of implementing the new system is to specifically reconcile a person's earnings and contributions to the benefits claimed by that person and any deviation between the two will defeat this purpose.
The Portfolio Committee on Labour raised the concern that a reference in one Act to a definition in another, may present some difficulties. Unfortunately, it will not, from a practical point of view, be possible to merely copy the wording of the definition of "remuneration" contained in the income Tax Act, 1962, in the UI Bill, as this definition in itself refers to a number of other provisions in the Income Tax Act, 1962, which will then also have to be incorporated in the UI Bill for this purpose. The only practical way that this can be done is by referring in the UI Bill to the definition of 'remuneration' as defined in the UI Contributions Bill.
Determination of the contribution
In terms of the current unemployment insurance system, only employees who earn below a certain threshold contribute to, and may claim from, the Unemployment Insurance Fund. In terms of the proposed new system, all employees regardless of income must contribute. There will, however, be a cap and employees who earn an annual income above this cap will only contribute on their income up to the amount of that cap, which is proposed to be set at R97 188 per annum.
The contributions must, however, be made on a monthly basis and in order to determine the monthly contribution, the remuneration for that month must, therefore, be grossed up to an annual amount, so as to limit it to the cap and then be converted back to a monthly amount on which the contribution is determined. Due to fluctuations in monthly income this could have the effect that during some months an employee's annual equivalent of the remuneration for that month exceeds the cap, whereas in other months it may be below the annual cap. This could, for example, happen when an employee receives an annual bonus during a month or when an employee is on unpaid maternity leave.
This would then mean that at the end of each year a recalculation will have to be done in order to determine whether the contributions in respect of an employee were correctly determined and paid over by an employer. Specific provisions will also have to be included in the Act to provide that where an employee was only employed for a portion of the year, the cap must be proportionately reduced when the annual redetermination is made. This will inevitably make the system extremely complex to administer.
In order to simplify the system, it is proposed that the contribution rather be determined on a monthly basis and that the cap be fixed at R8 099 (i.e. the monthly equivalent of the annual cap). The effect thereof will be that in some instances employees may contribute slightly less than they would have if an annual recalculation had been done. This will, for example, be the case where a person's remuneration falls below the cap during some months, but the annual remuneration at the end of the year still exceeded R97 188. Although there may be some loss in contributions, it will ensure administrative simplicity for both employers and SARS.
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