TERS funding – how to treat in payroll, deductions, maintenance and garnishees

The benefit received from the Department of Labour by an employer under the TERS scheme is a UIF benefit and in the ordinary course would be paid directly to the employee. It is therefore clearly not remuneration and not taxable.

Deductions form the TERS Benefit:

However, less clear is whether the employer can deduct the usual payroll deductions from the benefits received before paying them to employees:

  • Provident fund, medical aid, risk benefits and union deductions. There are two schools of thought on this and obviously no clear case law. However, we are of the view that an employer can deduct these from the UIF benefit to the extent they are contractually entitled to. We would however recommend that employers where possible communicate and get written agreement from the employee.
  • Garnishees/maintenance – while the Magistrates Act does refer to emoluments and where there is no remuneration or emoluments there is an argument that the garnishees/maintenance should not be paid, legal advice is that the garnishee/maintenance is a court order to the employer and any changes or no payment should only be in situations where the employer is no longer the employer or the court has given a ruling that the Emolument Attachment Order (EAO) is not payable. We would therefore recommend that where an employer doesn’t wish to pay the EAO that application should be made to the court.

Treatment in Payroll:

As discussed above, where the benefit is received by the employer and paid to the employee it should be treated as a UIF benefit and not remuneration.

Where an employer has decided to pre-fund the TERS benefit (in anticipation of receiving this from the DoL later) we would recommend the payment is treated as a TERS advance (and not remuneration). In the following period when the UIF benefit has been received this can be treated as a repayment of the advance. In the event the UIF benefit received is greater than the advance then the excess should be paid to the employee with no further consequences. If the benefit is less, then any excess not recovered from the employee will need to be re-classified as taxable remuneration.

TERS Scheme applications – make sure payroll agrees to the submission

With all the back and forth and changes to the TERS scheme process employers would be forgiven for making a mistake or two. Unfortunately, mistakes could lead to the application being rejected.

Some of the areas we expect mistakes likely to arise include:

  • Employers submit a TERS application including a submission for the pay expected to be made to employees during the lockdown. However, they fail to check that their TERS submission ties to their payroll. A s a result their monthly submission to the Department of Labour (DoL) doesn’t tie up causing the DoL to reject (or delay) their application;
  • Employers decide to advance money to their employees and not wait for the UIF benefits. However, the employer treats this incorrectly as remuneration in the payroll resulting in their monthly submission to the Department of Labour showing different remuneration to their TERS submission. Net impact, the rejection of their TERS claim;

For help with your TERS scheme application feel free to contact us.

Beware the deterioration of the employer and employee relationship

There is an increasingly concerning trend amongst employee organisations inferring employers are legislatively required to do several things including inter alia:

  • Pay their employees in full during the lockdown;
  • Employers cannot force employees to take annual leave;
  • The TERS scheme amendments oblige employers to apply for the relief for employees

These assertions are all incorrect legislatively.

Our concern is not that bad advice is being given. There seems to be plenty of misinformation and bad advice going around.

Our concern is more that this means we are, as employers and employees, in for a whole lot of pain in the coming months. It is never easy going through a recession and downturns and mass restructurings, but if the trust is not there in the first place this is likely to be a very adversarial period. Be warned, this will not be fun for anyone.

Please though make sure you follow the correct procedure and consult, communicate and keep a record! If you need advice or support though any employee restructuring, please contact us on [email protected] .

What do YES, labour brokers and ETI schemes have in common?

On the face of it these various schemes have little in common:

  • The Youth Employment Scheme (YES) was introduced to encourage youth employment by allowing companies to sponsor employment in other entities and in return gain a new level for BBEEE;
  • Employment Tax Incentive (ETI) was introduced originally as a short-term measure to encourage youth employment by offering a rebate to employers. It was then extended. Some employers have entered schemes with third parties to engage employers and claim this incentive. It is these types of schemes which we consider in this article;
  • The labour broking industry is well established in South Africa. Labour brokers engage employees to provide labour to a third party. The labour broker acts as employer and maintains compliance (pays all taxes). Recent legislation changes deem the relationship with the end client to be one of employment after three months;

In all three of the above schemes, the company has entered a relationship with a third party. In all three there is an element of employment.

In normal circumstances the relationship works well. However, with recent events the third party is under pressure and it is in these circumstances that cracks appear in the relationship. We have already seen examples of this:

  • We have seen an example where the third party usually providing the funding for the YES initiative is unable to do so this month placing the obligation on the employer to fund and potentially meet any subsequent obligations for severance and notice pay. The contract between the two parties does cater for this, but leaves the employer in the position of having to make a claim against the funder (who may not have adequate funds to meet this claim);
  • In a recent example an employer had entered an ETI scheme and had been successfully claiming ETI for employees without covering their full cost. The claims had created an employment relationship and opens the employer up to meeting the full obligations and cost of each employee particularly where the third party is unable to meet its commitments;
  • Labour broking employees won’t be paid during the lockdown and labour brokers are likely to find themselves under liquidity pressure. Assuming the labour broker is unable to meet their obligations it is further likely employees will try bring a claim against the end client. The end client will be unable to recover any losses from the labour broker;

We would urge employers to look at all their third-party arrangements to try and manage any risk from the third party entering financial difficulty.

Hens coming home to roost – historic non-compliance

A key part of our business is compliance. As one would expect, compliance has not always been a crucial element of some employers’ strategies; and over the years we have lost clients to cheaper alternatives where compliance is less of a focus.

In the last month we have seen so many examples of employers coming to us asking for help with TERS scheme applications where they are either not registered for UIF or haven’t submitted a monthly declaration file for years.

While registration may be simple, the task of getting them compliant so they can claim on behalf of their employees becomes an expensive and time-consuming process. At a time when they can’t afford it.

The net result, they cannot claim for TERS relief and their employees lose out and cannot understand why…

Adding insult to injury some of these non-compliant employers cannot understand why they shouldn’t be allowed to claim even though over time they haven’t made one cent contribution to the UIF Fund…

On the plus side we expect UIF registrations to rocket with several small employers having to do it to get reliefs and, in the process, falling into the Department of Labour’s net for the future – assuming they can survive this period of course. We hope so for their sake.

Domestic Workers – post the Covid-19 lockdown

Editor’s note: Should you need any assistance with any of the above including becoming UIF compliant, helping your employee to apply for UIF, following the right procedure or for HRTorQue to run your domestic payroll to make sure you are compliant then please feel free to contact us.

There are estimated to be one million domestic workers in South Africa. Often these workers are in turn the only income earners in their families. While some employers have continued to pay their domestic workers during the lockdown, there appear to be instances where domestic workers’ services have been terminated immediately prior to the lockdown. In addition, when the lockdown ends it is anticipated many domestic workers will not be able to return to their jobs either because employers are concerned about increased covid-19 risk to their families or because the employers themselves are no longer being paid and are unable to afford their domestic worker anymore.
In this article we look at the various aspects of this very serious issue.

 

Moral considerations

The government has urged that employers try to pay their employees where they can. It is important to note that despite rhetoric in the press and from unions, there has been no legislation passed requiring specific action. Existing legislation remains in place and therefore employers have the right to consider the options below and can choose if they wish to pay employees even where no work is performed. We hope where you can afford it that you continue to support your domestic workers.

 

Options for the employer

The following are the main legal options being actioned by employers during this difficult period:

  1. Requesting employees use their annual leave and when this is finished going on to unpaid leave. Under the BCEA Section 20 (10) unless there is a specific agreement to the contrary, the employer may tell the employee when to take annual leave. Then on the no work no pay principle unpaid leave can be applied where the employee is not performing any work and their annual leave is used up. The employer may choose to let the employee go into negative annual leave should they wish to.
  2. Moving the employee on to short time on the basis they are unable to work when away from their place of work. This will reduce the cost to the employer for the period of the short time.
  3. Mutually agreeing to reduce the employee’s pay. Note, the minimum wage regulations apply so the remuneration for hours worked cannot reduce below the R15.57 per hour legislated as the minimum wage from the 1 March 2020
  4. If the employer can no longer afford their domestic worker then the employee can be retrenched provided the correct process and payments are made (see below).

 

Reliefs available to the employee

Assuming the domestic worker is either not being paid because they are on unpaid leave or are on short time, the employee can apply to claim the following reliefs. Note they can only claim these if the employer is registered for UIF with the Department of Labour and in good standing (up to date with submissions and payments).

1. National Disaster Benefit

This would be claimed when the employee will not be receiving any money at all from the employer during the lockdown. The employee will receive a flat rate equal to minimum wage of R3,500 for the duration of the shutdown or for a maximum of 3 months whichever is shortest.

2. Reduced Work Time Benefit

This would be claimed when the employee will be receiving a reduced wage/salary as a result of the lockdown. The benefit received is the difference between what the employers pays and normal UIF benefits payable. This benefit will be dependent on the number of credits the employee has accrued with UIF.

3. Illness benefit

If the employee contracts covid-19 and is sick and unable to work (or self-isolating as a result) then the employee can claim illness benefits under UIF.

4. Other business reliefs

Unfortunately, it is not likely that a domestic worker will be considered as performing a trade and the other reliefs available to fund employees including the TERS scheme are unlikely to be available to domestic worker employers and employees.

 

Compensation Fund Payments for Domestic Workers

Despite a constitutional court ruling recently that domestic workers should be entitled to benefits from the Compensation Fund for illness arising from their employment the legislation has not been passed to enable this. Domestic workers are therefore currently not practically able to receive compensation from the Compensation Fund.

 

Termination of services

Under Sectoral Determination 7 and the BCEA, domestic workers are entitled to the same considerations as any other worker. This means you cannot arbitrarily terminate their services. Your options are most likely:

  1.  Termination based on performance (this will be only be possible if this process was started prior to the lockdown allowing the employee a fair chance to improve their performance);
  2. A mutual separation agreement – payment for entering a mutual termination. The conditions and consequences must be clearly discussed and understood by the employee including that they will not be able to claim UIF as this is seen as a voluntary agreement;
  3. Termination of services based on retrenchment i.e. the role is no longer available. Where you intend retrenching your employee you need to follow this process:• Notify your employee of your contemplating retrenchment and advising of various options you have considered to try and avoid retrenchment;
    • Give them opportunity to consider your alternatives and present any other alternatives that may assist in avoiding retrenchment
    • Show that you as the employer have properly considered any representations and alternatives and provide feedback on whether they are valid or not;
    • Assuming not valid, issue a notice of termination;
    • On termination pay out any remaining annual leave plus the appropriate notice pay plus any retrenchment/severance pay:
    – Notice Pay (you can ask the employee to work the notice period) (sectoral determination 7)
    a. 0 to 6 months service = 1 week
    b. 6 months or more = 4 weeks
    – Severance/retrenchment Pay = 1 week per completed years’ service

SAFT Funding paid to employees – taxable or not taxable?

The Covid-19 pandemic is certainly a world event that will go down in history as having an unprecedented impact on world economies, businesses at all levels and the fabric of society in general. The financial impact of the pandemic in South Africa could not have come at a worse time. The economy is struggling due to a growth rate of less than 1%, high unemployment levels, poor tax revenue collection levels and a currency that is taking a hammering on the world stage. We as South Africans are a hardy bunch though and in times of hardship we see people from all walks of life come together to contribute to relief initiatives. We see this with feeding initiatives and care for the vulnerable sectors of our society. At a corporate level we have seen big business pull together to create funding initiatives to assist SMMEs with operational funding. One of these initiatives is the South African Future Trust (SAFT), established by Nicky and Jonathan Oppenheimer. This fund makes funds available to South African businesses impacted by the coronavirus from 3 April 2020.

The main aim of the SAFT is to mitigate the immediate economic impact of the Covid-19 crisis by keeping companies in business and protecting jobs, in order to fast track South Africa’s economic recovery after this pandemic. The trust will extend direct financial support to employees of South African Small, Medium and Micro-sized businesses who are at risk of losing their jobs or will suffer a loss of income because of Covid-19.

SMMEs need to apply through one of the four major banks (ABSA, Standard, Nedbank and FNB). To qualify for such loan funding SMMEs will need to meet the following criteria:

  • Annual turnover below R25 million
  • Must have been trading for at least 24 months
  • It must have been a sustainable business at 29 February 2020
  • It must have been adversely affected by the Covid-19 outbreak

Once approved the funding will be distributed via SAFT, and will be paid out directly to the businesses employees as interest-free loans:

  • Employees themselves will not be liable to pay the money back, but the company will be
  • There is no minimum monthly payment requirement; the loan only needs to be repaid at the end of the period
  • There will be no interest payable for a five-year (60 month) period, and the loan is subordinated to other pre-existing loan agreements
  • Should the business be unable to repay the loan, SAFT will work closely with them to ensure that repayment plans are in place, which are sustainable for their business

It is suggested that any payments made by SAFT to the employees will be tax-free. Employees will receive R 750 a week for 15 weeks.

Whilst the applicable literature states that the weekly payments will not be taxable, there are a number of issues to look at before you can safely come to that conclusion. These include:

  • Is the loan granted due to the employer / employee relationship and therefore potentially subject to fringe benefit implications?
  • Is the loan effectively ‘remuneration’ as defined in the Income Tax Act?
  • Would the fact that the company receives this loan interest-free for at least 60 months impact on tax considerations?
  • Would the weekly payments be regarded as a ‘benefit’ and therefore tax-free as per the legislation that exempts UIF benefits?

We would therefore encourage employers to look carefully at these payments and how they put them through payroll.

As mentioned earlier we are in unique times and legislation is very rarely drafted to cater for all eventualities. We are, however, on a daily basis seeing more and more information made available on such matters. We will continue to liaise with the Payroll Authors Group of South Africa and SARS regarding developments on such issues and will publish any important information in this regard on this forum, as and when it becomes available.

Injury on Duty claims for employees who contract Covid-19 at work

On Friday, 20 March the Department of Labour published a notice on the compensation for occupationally acquired novel Coronavirus disease (COVID-19) in terms of Section 6A of the Compensation for Occupational Injuries and Diseases Act (COIDA).

Occupationally acquired COVID-19 is a disease contracted by an employee arising out of and during his/her employment.

The notice deals with occupationally acquired COVID-19 resulting from exposure to confirmed cases of COVID-19 in the workplace, or after an official trip to high-risk countries or areas.

Employers must follow the stipulated regulations when submitting claims for COVID-19.

A claim for occupationally acquired COVID-19 must be set out as per sections 65 and 66 of the COID Act.

During this pandemic it is crucial for employers to implement the rules and regulations of the Occupational Health and Safety Act 85 of 1993 (OHS Act). The regulations in the OHS Act must be followed to their full extent to avoid claims by employees and fines imposed on the employer at a later stage. The OHS Act states that an employer must ensure that its working environment is safe and without risk to the health of its employees.

For more details on the official notice, follow the link.

SMME Funding & Relief

The President announced during his 23 March Coronavirus Lockdown speech a relief fund for SMMEs to fund working capital and direct costs. Over the past few days further guidance has arisen around this scheme amidst a raft of “fake news”. Notably that the scheme will be available for SMMEs in good standing with SARS and the Department of Labour; have 100% South African ownership and 70% South African employees; with priority given to women, persons with disabilities and youth businesses (although the latter statement was made in a speech and is not confirmed).

We understand the funding terms are (not yet certain):

  • The facility will be for working capital only (direct, auditable costs)
  • Maximum R500,000 per SMME will be considered
  • Terms of the funding will be dependent on the business’s cash flow
  • Loan facilities will be at Prime less 5%
  • Any misuse of funds will need to be repaid at Prime +10% (indicative)

Application can be made through http://www.smmesa.gov.za/ . The website is working and one can register. We cannot yet give feedback on what happens thereafter.  We will keep an eye on it and update clients as we see progress.