On 26 March 2020, South Africa went into lockdown. As part of the regulations enacted by President Ramaphosa in terms of the Disaster Management Act, all non-essential businesses were required to cease trading.
As a result, businesses that cannot trade may not be able to pay their employees and may be forced to temporarily layoff staff. In order to assist employees whose livelihoods may be negatively affected, the government has introduced the COVID-19 Temporary Employee Relief Scheme (C-19 TERS) available to all businesses affected by the lockdown.
Herewith a brief summary of the pertinent questions that has been put to us:
- Should employers claim directly from the UIF or through their Bargaining Council?
- It was agreed that if the employer does not belong to a Bargaining Council, then the claim must be submitted directly to UIF. As a result of the sheer volume of claims employers were requested to submit all claims for all affected employees.
- If an employer belongs to a Bargaining Council then clarity should be sought whether a Memorandum of Agreement was entered into between the Bargaining Council and the UIF. If this is the case, then the application will be submitted directly to the Bargaining Council.
- If this process wasn’t completed by the Bargaining Council, then the employer must submit the application directly to the UIF.
- Was any guidance provided on how the claim would be calculated?
- The benefit is calculated on a replacement income sliding scale applied by the fund which will vary between 38% – 60%.
- The maximum remuneration on which the rating will be applied is capped at R 17 712 per month.
- Our interpretation is that higher income earners will be able to claim a maximum of 38% per month. Lower income earners will be able to claim between 38% and 60%, based on their level of income and lower income earners will receive a minimum of at least R 3 500.
- Basic example 1: An employee who earns a salary of R 30 000 will be paid a maximum of R 6 730 (R 17 712 * 38%)
- Basic example 2: if an employee normally earns R 5 000 per month a minimum of R 3 500 (R 5 000*60%=R 3 000, limited to R 3 500)
- The exact percentage that the affected employee would receive, will be determined in accordance with the UIF calculator.
- Where will the remuneration be paid once the application is successful? Can the funds be used for any other purpose? What about businesses that only closed partially?
- If an employer employs 10 or less employees: The money will be paid directly to the employees by the UIF.
- For all other employers (more than 10 employees), the UIF will pay the funds into the business bank account. The employer must pay the amount over to its employees within 2 days after receiving the funds.
- Any unutilized funds must be paid back to the UIF with interest.
- The money paid out to the employer is not a company asset and the banks cannot withhold the money to settle other claims, for instance repayments on overdrafts etc.
- The money must be used by the employer to pay the employees, it cannot be used to settle other debt.
- The employer can top-up an employee’s salary up to the maximum amount which the employee is entitled to in terms of the contractual agreement between the employee and employer. The amount claimed from the UIF cannot result in a bonus payment in excess of normal remuneration.
- Should a business only close partially (for instance, if part of the employees are able to work remotely), then a partial claim will be submitted for consideration.
- Temporary employees who are under contract would qualify for the benefit.
- Businesses who cannot pay their employees and who do not make use of the relief measures put in place can potentially be reported to the Department of Labour for misconduct.
- Separate accounting records
- The employer is required to maintain separate accounting records for the benefits received. The employer will be held accountable for the funds received on behalf of the employees. Remember that it is not a business asset.
- A proper audit trail must be kept for funds received and paid out to the employees.
- These records must be maintained for a minimum of 5 years.
- The UIF can appoint an auditor to verify the utilization of the funds.
- Tax treatment
- The MOA is promulgated in terms of the Unemployment Insurance Act, 2001, which means that the benefits paid out are done so under this act.
- In terms of section 34 of the UIF Act: Benefits payable to contributors and dependants in terms of this Act are not subject to taxation in terms of the Income Tax Act, 1962 (Act No. 58 of 1962).
- Based on my interpretation, no PAYE must be withheld.
What happens after lockdown?
- Short time and temporary layoffs can be implemented by employers to avoid retrenchments.
- Employers can make use of the TERS fund up until the 25 June 2020 (3-month period) in cases were more temporary layoffs were implemented (other than lockdown).
- Forced annual leave can be implemented. This must be formally agreed to by both parties.
- As a last resort, employers can consider retrenchment.
If you require assistance or clarification re any of the above, please don’t hesitate to contact one of our PKF Octagon Partners.
Prepared by Bianca Roos : Partner, PKF Octagon