Labour's Submission on the

Unemployment Insurance Bill

Presented at NEDLAC, 14 April 2000


Table of Contents

1. Introduction
2. Process of Considering the Bill
3. Areas of Support
  1. Progressive Scale of Benefits
  2. Expanding the Scope of the UIF
  3. Benefit Period
  4. Right to Maternity Benefits
  5. Topping of Benefits

4. Core Areas of Concern

  1. Exclusion of Domestic Workers
  2. Exclusion of Public Servants
  3. Nature of the Fund
  4. Financing

5. Other Concerns

  1. Suspension of a contributors’ right to benefits
  2. Right to Unemployment Benefit
  3. Illness Benefits
  4. Dependant’s Benefit
  5. Definitions
  6. Appeals and Disputes
  7. Drafting Errors
  8. Data Base

9. Conclusion


  1. Introduction

South Africa currently faces high unemployment rates. Given the high levels of unemployment and job losses prevalent in the economy, it is critically important that the Unemployment Insurance Fund (UIF) be transformed in such a way:

Against, this background the labour movement welcomes the tabling of the Unemployment Insurance Bill (hereafter the ‘Bill’). The Bill contains positive elements such as de-linking maternity benefits from unemployment benefits; the improvement of the benefit period; widening the scope of the UIF to include previously excluded workers such as high-income earners; and the progressive scale of benefits. These proposals, which labour support, improve the current situation and give effect to elements of the Task Team report that labour supported. However, there are areas of substantive concerns with elements of the Bill, which must be addressed if the Bill is to fulfill its mandate. Among others these include, exclusion of domestic workers and public servants; the role of the state as an underwriter and the nature of the board.

The Bill is an important step in the transformation of the UIF, which was conceived of in different circumstances and provided cover for a limited number of those in employment and unemployment. At any point in time, less than 12% of South Africa’s unemployed are benefiting from the UIF. Therefore the Bill complements the efforts to transform the apartheid labour market. In addition, it is part of the ongoing effort of developing a comprehensive social security system in South Africa. The UIF can only provide short-term relief to those who have been recently employed. It is imperative that additional social assistance mechanisms be put in place, aimed at providing a social safety net to the larger number of people who are experiencing structural unemployment and have never had a job in the formal sector.

  1. Process of Considering the Bill

A Task Team comprising of three-a-side was established by the Labour Market Chamber to consider the Bill and revert to the Chamber. The following constitute labour’s submission into the NEDLAC process. It represents the views, of the three Federations, namely COSATU, FEDUSA and NACTU. A more detailed document proposing legal amendments to address the concerns raised in this submission will be supplied in due course.

As stated in the previous Task Team meeting, we believe that the Contributions Bill should be considered simultaneously with the UIF Bill. The Contributions Bill is crucial as it provides a framework for the financing of the UIF. In our view the Contributions Bill should not be considered as a money bill in terms of section 77 of the Constitution. Section 77 of the Constitution defines a money bill as a bill that "appropriate money or imposes taxes, levies or duties."

The main motivation for this argument is that the UIF is a social insurance financed by contributions by employers and workers. It is doubtful whether such contributions constitute a tax. In addition, the contributions go to the UIF rather than to the state. Although, the contributions from SARS have to be paid into the National Revenue Fund, the total amount of such contributions is a direct charge against the National Revenue Fund for the credit of the UIF. In terms of the note to section 77 of the Constitution any Bills which provide for direct charges against the National Revenue Fund are not money bills as defined in section 77(1) of the Constitution.

Further defining the Contributions Bill as a money bill would severely limit the powers of the Board. In our view, the Board should have full executive powers as discussed below. As such, the Contributions Bill should be part of the Bill rather than a separate Bill.

  1. Areas of Support

3.1 Progressive Scale of Benefits

In terms of section 4(2)(b)(iii) the scale of benefits "may vary between 60% for low income contributors to some other lower rate as will be determined by thresholds as set out in terms of schedule one." The underlying principle for a progressive scale of benefits is welcome as it would mean a greater portion of low-income earners income will be replaced. There are strong equity and poverty alleviation arguments backing up the need for a greater proportion of low income earners’ wages are replaced. The current situation, of a uniform scale of benefit of 45%, favours higher income-earners relative to low-income earners.

However, there is a need for certainty on the table as contained in schedule 1. The current table is an example for illustrative purposes but does not set the actual replacement rates. This is problematic, as it gives considerable scope, without any explicit guidelines, for changing the amounts.

3.2 Expanding the Scope of the UIF

In terms of section 3 the scope of the UIF has been broadened to include high-income earners and seasonal workers. The inclusion of high-income earners will contribute in bringing stability to the fund as employees in these categories are not as a rule affected by unemployment. In the event of being unemployed, they are able to find jobs due to their skills. The added benefit of including high-income earners is that they can cross-subside low income earners. Nevertheless, as shall be shown below, we have concerns with the blanket exclusion of public servants and the manner in which the issue of domestic workers is handled in the Bill.

3.3 Benefit Period

In terms of section 5(3) a contributor’s entitlement to benefits accrues at a rate of seven days benefit for every 42 days of employment as a contributor subject to a maximum accrual of 238 days benefit in the four year period immediately preceding the date of application for benefits. This is welcomed as an improvement on the current benefit period of (6 months limit) and the accumulation of credits (1 week for every 6 week’s employed). Consequently, the benefits period is not extended to 34 weeks.

3.4 Right to Maternity Benefits

  1. Separation of Maternity and Unemployment Benefits

First we welcome and support the Bill’s separation of maternity benefits from unemployment benefits as provided by section 5(5). Section 5(5) provides that the "days of benefits that a contributor is entitled …is not reduced by payment of maternity benefits…" This will secure women’s unemployment benefits if they go on maternity leave. This is consistent with the Task Team’s recommendation that the administration of maternity benefits through the UIF, should in no way mean a woman’s unemployment benefits are eroded as a result of having received maternity benefits. Likewise, drawing from the unemployment benefit should not affect a woman’s maternity benefit.

However, period of pregnancy should be full four (4) months rather than 16 weeks as proposed by section 16(4). Sixteen weeks is not equivalent to four months.

Under the current dispensation a woman is entitled to six months maternity leave. To ensure that no woman is worse off due to the new Act as a general rule there should be an option of 2 months linked to service in addition to the BCEA’s four months maternity leave. The 2 months option will also accommodate collective agreements that provide for 6 months maternity leave.

  1. De-linking Maternity Benefit from period of employment

However, we believe that the right to maternity benefit should be automatic and entitlement to benefits should not be linked to a period of service. In terms of section 5 of the Bill a contributor is entitled to benefits only when they have accumulated contributions of up to 238 days in the four-year period preceding the date of application for benefits. The motivation for our proposal is to avoid the unintended indirect discrimination of pregnant women. The recent judgement in the matter between Woolworths and Beverly Whitehead has serious implications for pregnant women when applying for employment and should be taken into account.

To peg the benefit to maternity leave to period of employment would constitute indirect discrimination against pregnant women. The effect is that pregnant women will conceal their pregnancy status first in order to be employed. Secondly, the proportionate formula of calculating benefits would mean a woman who was pregnant at the time of employment would receive maternity benefits for a reduced period of time.

  1. Application for Maternity Benefits

The relationship between section 17(1) (application must be made at least eight weeks before confinement) and section 17(2) (application must be made within six months of the confinement) is unclear and needs to be clarified. Further, there is no indication when benefits are payable from. Under the BCEA [section 25(2)] maternity leave can be taken from four weeks before the expected date of birth unless a medical practitioner certified that it is necessary for the leave to be taken earlier. This provision should be referred to as the starting point for eligibility for maternity benefit under the UIF.

3.5 Topping of Benefits

The Bill endorses the principle of topping up benefits for the following benefits illness; maternity, adoption benefits and dependants benefits. This principle is welcomed and supported as it improves on the current situation where the beneficiary may only receive UIF benefits if he or she receives less than one-third of his/her earnings during for example illness. In terms of section 13(2), 16(3), 19(4) and 22(4) the weekly benefit only becomes payable to the beneficiary when the difference between the usual remuneration of the contributor represents more than fifty percent of the usual remuneration of the contributor.

  1. Core Areas of Concern

4.1 Exclusion of Domestic Workers

In terms of section 3(1)(d) domestic workers are excluded from the Act subject to an investigation to investigate the methods to include them. The investigation may be concluded in eighteen months.

This proposal is problematic. We believe that there is consensus that domestic workers should be included in the UIF, and that the only concern remains around how to collect their contributions. This Bill has to reflect this consensus and ensure that technical issues do not delay their inclusion indefinitely. Already, two comprehensive investigations have considered alternative methods of bringing domestic workers into the Bill.2

We believe that the Bill should provide for the inclusion of domestic workers after a fixed period of 12 months, to allow for any further investigation needed and the establishment of the necessary systems. The Bill should therefore include:

Further, the Bill should include a definition of domestic workers along the lines of the BCEA. The BCEA defines a domestic worker as follows:

"an employee who performs domestic work in the home of his or her employer and includes –

  1. a gardener;
  2. a person employed by a household as a driver of a motor vehicle; and
  3. a person who takes care of children, the aged, the sick, the frail or the disabled;

but does not include a farm worker."

4.2 Exclusion of Public Servants

Public servants are excluded in terms of section 3(1)(c). In principle, we believe that public servants should be included in the UIF. We realise that given the current fiscal policy, however, if it is included as part of personnel costs, the employer contribution might be raised at the cost of remuneration for public servants. We therefore propose that:

4.3 Nature of the Fund

We believe that the fund should be a fully-fledged agency like the South African Revenue Service (SARS). It is, after all, an insurance system, not a social welfare system, and therefore should first and foremost be responsible to contributors. This has four key implications:

4.4 Financing

  1. Adequacy of Funding

The current state of finances of the UIF can be described as a ‘crisis’ – the fund has a large deficit but has the obligation to meet large claims. The Fund is teetering on the verge of collapse if its funding is not radically changed. There are five ways to improve the financial state of the fund:

  • increase levels of contribution;
  • reduce benefits;
  • bring more contributors with relatively stable employment into the scope;
  • reducing fraud and improving efficiency;
  • increasing the government subsidy.

As noted above, we feel that contributions should not be dealt with in a separate bill, since the UIF contribution is an insurance contribution, and in no way a tax. The funds do not go into the general revenue, and they are tied directly to the needs of the contributors. They do not, then, fall under the Constitutional requirements for a money bill.

The Contribution Bill retains the current status wherein the employer contributes 1% and the employee contributes 1%. However, will this level be adequate to improve the current financial state of the fund? Secondly, what will be the impact of de-linking maternity from unemployment benefit on the financial position of the fund?

For this reason, we believe that the costing models should be availed to ascertain the impact of the changes on the financial position of the Fund. Until such time, it will be difficult to determine the viable route of ensuring that the fund is sustainable. As noted above, the bill should rather set a ceiling, then let the Board vary the actual amount after appropriate consultation.

  1. Role of the State

Against, this background we are disappointed that the state is not willing to commit financial resources. Historically, government contributed substantial amounts of money which stabilised the fund. In our view, the state should underwrite the fund as part of its vision to progressively realise the right to social security. From the standpoint of the State, the UIF is one of the cheapest ways to improve social security, since the vast majority of the funds come from the beneficiaries themselves.

Unfortunately, in the Bill the role of the state is to play a custodial and trustee role, and not to subsidise the fund. For instance, it is not clear whether the state will appropriate money from the national fiscus to make up the deficit of the fund in terms of section 52(4). Section 52(4) provides that the "Minister of Labour may request the Minister of Finance to adjust the national budget" in the event there is insufficient resources to meet payments for benefits.

This clause should be strengthened to ensure that the government meets any deficit incurred by the Fund due to normal and responsible operations.
  1. Taxation of Benefits and of the Fund

In terms of section 26, benefits will be taxed but whether the fund as a whole is exempted from taxation is not clarified.

  • First, the tax exemption of the fund should be retained.
  • Second, benefits should not be taxed since this amounts to double taxation. Employees already pay tax on their income before the deduction of the UIF contribution. Further taxation of benefits raises practical problems of how these will be collected and how will taxable income determined.

  1. Other Concerns

5.1 Suspension of a contributors’ right to benefits

In terms of section 28(1) the Commissioner may suspend a contributor for a period of up to twelve years from receiving benefits if he is satisfied, inter alia, that a contributor failed to comply with a written demand issued in terms of section 26(2). Unfortunately there is no section 26(2) in the Bill and it is unclear what written demand is being referred to. The implementation of this clause is potentially drastic for a contributor. Another concern is that it is unclear whether the contributor will also be suspended from contributing. Section 28(3) refers to sections 30 and 31, which do not appear to correspond.

5.2 Right to Unemployment Benefit

  1. Dismissals

Section 8(1)(a) stipulates that a contributor is eligible for unemployment benefits only if the contributor is unemployed due to termination of his or her contract by the employer. However, section 186 of the Labour Relations Act (No. 66 of 1995) defines "dismissal" to include failure to renew a fixed term contract that the employee reasonably expected would be renewed [186(b)] and termination of a contract by an employee where the employer has made continued employment intolerable [186(e)]. It should be made clear that contributors who become unemployed for either of these reasons do not jeopardise their right to benefits.

  1. Short-time or Temporary Layoff

The exemption for "short time or temporary lay off" should not be relegated to a vague footnote to section 8(1)(a) and should be clearly defined. The exemption should be limited to periods of two weeks or less. The manner to address this matter would be to amend section 8(1) so that contributors are eligible for benefits "for any period of unemployment lasting more than 14 days of. .."

  1. Penalties for refusing work

While we concur that the Director General should be empowered to penalise contributors who refuse available work, training, or vocational counseling, we believe that the provision for such penalties in section 10(2) should exclude situations where the contributor has good reason for rejecting such work, training, or counseling. The language similar to section 8(2)(b) should be incorporated so that penalties could only be applied "if the contributor refuses without good reason to accept available work.."

  1. Application for unemployment benefits

In terms of section 9(2) application for unemployment benefit must be made within six months of the termination of contract of employment except that on good cause shown the Commissioner may accept an application made after six months time limit has expired. In terms of the old Act applications for benefits must be submitted within four years of entitlement to that benefit [section 34(10)(a) of the Unemployment Insurance Act, Act 30 of 1966]. We are not convinced why this provision should change and have concern that "good cause’ shown is flexible and give the Commissioner too much discretion. In any event six month is a short period of time and does not take into account the fact that sometime there will be long running disputes regarding dismissals. In most instances it takes up to 12 months for disputes to be settled in the CCMA.

5.3 Illness Benefits

Access to illness benefits in terms of Part C (section 12) should not be strictly limited to cases of illness, but also should include periods of unemployment or limited employment due to incapacity for other medical reasons. Therefore, throughout Part C, the term "medical disability" be substituted for the term "illness". In addition, medical disability should be defined in section 1. Section 11 should be changed to "meaning of period of illness" rather than period of unemployment.

5.4 Dependant’s Benefit

Section 22 makes provision for the payment of dependant’s benefits only to the spouse or child of a deceased contributor. This is at odds with other recent legislation, which acknowledges the equivalent rights of domestic partners other than spouses.

Section 27(2)(c)(i) of the Basic Conditions of Employment Act (No. 75 of 1997) makes provision for leave in the event of the death of an "employee’s spouse or life partner." The Medical Schemes Act (No. 131 of 1998) defines "dependant" to include an individual’s "spouse or partner". Similarly, the Promotion of Equality and Prevention of Unfair Discrimination Act (No.4 of 2000) list responsibility towards one’s spouse [or] partner" as aspects of its definition of "family responsibility." Section 22 should be amended accordingly to include "partner" in addition to spouse.

5.5 Definitions

  1. Contributor

In terms of section 1 a contributor means "an employee or a natural person who was employed and who can satisfy the Commissioner that the contributor has contributed for purposes of this Act". There are two concerns with this definition. First, there is a confusion of terminology throughout the Bill in referring to the employee who is entitled to claim benefits. The employee is defined as the "contributor" yet at various stages the employee is referred to as the "applicant" (see for example section 9 & 14). In some cases there is even confusion in the same sentence. The correct reference throughout is "contributor".

Secondly, the effect of the clause as drafted places an unfair onus on the claimant to prove they were a contributor. This is the effect of the words "who can satisfy the Commissioner that the contributor has contributed for purposes of this Act." It would cause many claimants – especially those of unscrupulous employers who had not registered them or failed to make or hand over deductions – to lose their entitlements. The previous Act did not contain such an onerous provision and merely defined a contributor as a particular class of employee.

  1. Employee

Section 1 defines an employee as "including an employee as defined in the Fourth Schedule to the Income Tax Act, other than a person contemplated in paragraph (c) or (d) of that definition." This definition is presumably included to make it easier for SARS to collect UIF contributions. The definition in the 4th Schedule of the Income Tax Act essentially refers to anyone who is in receipt of remuneration. ‘Remuneration’ is then defined at some length in the Income Tax Act. Firstly this approach makes the determination of a contributor mainly dependent on the definition of an employee for revenue purposes and secondly, far from simplifying matters, complicates them because of the convoluted provisions of that Act which define remuneration.

Thirdly, it might have the effect that an employee who is remunerated purely on the basis of output (e.g. piecework), could be excluded from the scope of the Act whereas the LRA and the BCEA would cover such an employee. Lastly, the definition is unclear when it state that an employee ‘includes’ someone classed as such under the Income Tax Act, without stating the general meaning of the term first. At the very least it should be clear that it applies to anyone covered by the LRA and Income Tax Act.

  1. Employer of a contributor

Section 1 defines an ‘employer of a contributor’ as including an employer as defined in the Fourth Schedule to the Income Tax Act. We believe that this should be omitted from the Bill. This is not a definition of an employer, and it is hard to see why it is necessary to include this extension of the definition of the employer of a contributor, if the meaning of an employee is already extended to employees as defined by the 4th Schedule of the Income Tax Act.

5.6 Appeals and Disputes

In terms of section 29 disputes relating to payment or non-payment of benefits may be referred to the CCMA. We believe the Appeals Committee currently in place should be retained for a number of reasons. Referral of disputes to the CCMA raises legal and practical uncertainties. On the legal question, it is uncertain whether one administrative body can adjudicate decisions of another administrative body. The CCMA as an ‘administrative body’ would be required to adjudicate the decisions of the Commissioner in terms of section 29. On practical grounds it is uncertain whether disputes would be resolved expeditiously due to the fact that the CCMA currently lacks a fast-track adjudication mechanism. It is uncertain whether disputes related to payment or non-payment of benefits have to follow the entire process of conciliation, mediation and arbitration.

In addition, referring the disputes to the CCMA is not cost-effective. For example if the dispute involves a relatively small amount of money, it will not be cost-effective to refer the dispute to the CCMA, at least from the point of view of the contributor.

Against this background, we argue for the retention of the Appeals Committee whose decisions are reviewable in the Labour Court. This will accelerate the resolution of dispute, as people who have specialised knowledge of the UIF will handle cases.

5.7 Drafting Errors

In addition to the drafting errors noted above, there are large number of cross-references that refer to sections of the Bill that are either non-existent or inappropriate. The following cross references, at least, should be checked: reference to section 26(2) in section 28(1)(d); reference to section 35(2) and 39 in section 31(10; reference to section 39(1) in section 31(2)(d); reference to section 41 in section 31(4); reference to subsection 6 in section 40(4)(a); and reference in section 67(1).

In section 12(1), the conjunction between conditions in the a, b, c series invites uncertainty about whether more than one condition must be fulfilled. We presume that an applicant would be entitled to benefits if he/she met conditions a or b, and also c. If so clause c should become part of the main clause: [c.] and application is made…

5.8 Data Base

The Task Team recommended that the UIF should move away from the blue card to a computerised database. The blue card system frequently makes workers vulnerable to exploitative or vindictive employers who withhold the blue card and make it difficult for workers to gain access to their unemployment benefits. In working out the details of a new computerised data base system it is critical that the system be designed to be user-friendly for workers and employers, that it lead to an overall improvement in the payment system, and that it lead to reduction in the possibility for fraud.

Section 56 mandates the Commissioner to set a database of contributor and employers, however, it is not clear whether the blue card system is effectively abolished. Lack of clarity on how contributors would be identified will create serious practical problems. This will be compounded by the onerous provision that the contributor must satisfy the Commissioner that he/she has contributed for the purpose of this Act (as provided by the definition of the contributor in terms of section 1). Therefore it is important that the Bill clarifies how contributors would be identified and secondly place the duty on the UIF to keep proper record rather than demanding that contributor must satisfy the Commissioner about their track record as contributors.

  1. Conclusion

Broadly, the submission registered labour’s support for the Bill as part of transforming the apartheid labour market and transforming the current UIF dispensation. In addition, the Bill constitutes an important step in the process of designing a comprehensive social security system. There are various elements of the bill that labour welcomes and support. At the same time there we have raised substantive concerns with elements of the Bill. These issues should be addressed so that we can give our unconditional support to the Bill.

Footnotes:

    1. The Task Team recommended that income replacement should vary between 70% for low-income earners to 35% for high-income earners.

    2. Limbrick and Associates conducted the first investigation in 1993 for the erstwhile Department of Manpower. This Report recommended that domestic workers should, in principle, be included within the protection of UIF and put forward a number of options as to how the administrative issues this raises may be addressed. Subsequently the 1996 Task Team Report endorsed the recommendations of the Limbrick Report and recommended that domestic workers should be included in the Bill.



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