Date: 19 April, 2020
Author: John Henning

Unemployment Insurance Fund (“UIF”) and Employment Tax Incentive (“ETI”) For reference purposes the department of labour released an easy guide on its website for employers, detailing the relief benefits that are available to employers and employees, and there are various communications from the department of Labour, as well as professional entities insights, who discuss the intricacies of the Basic Conditions of Employment Act (“BCEA”), however, this article is meant to be a pragmatic look at the relief schemes available to employers and employees.

• UIF ETI SCHEME
  
  Companies can claim back up to R1,500 a month per employee who earns less than R6,500 (for those younger than 30), and R500 for those 30 and older. These amounts will be paid back every month by SARS as part of the ETI programme.
  
  
• UIF pay-outs
  
  As part of the special Temporary Employee/Employer Relief Scheme (“TERS”), administered by the Unemployment Insurance Fund (UIF), money will be paid out to workers in distressed companies. The amounts paid will be a percentage of an employee’s salary, according to a legislated sliding scale from 38% (for the highest earners) to 60% (for the lowest earners). The maximum benefit is R6,730 a month.
  
  Companies struggling to pay salaries due to the coronavirus crisis need to report this per email to [email protected]. The first of the new coronavirus benefits will be paid in the next few days.
  
  
• UIF Benefits
  
  The benefit will be at a flat rate equal to the minimum wage (R3,500) per employee for the duration of the shutdown or a maximum period of 3 months, whichever period is the shortest.
  
  Should an employee become ill, temporarily laid-off or unemployed for a period longer than 3 months, the normal UIF benefits will apply.
  
  Where a company shuts down for a certain period or implements reduced or short time, benefits payable will be the difference between what the employer pays and normal UIF benefits payable should the employee lose their employment.
  
  Where an employee has been quarantined for 14 days due to COVID 19, the illness benefit process will apply. For this to be applied a confirmation letter from both the employer and employee must be submitted together with the application as proof that the employer and employee have both agreed to the 14 days “special leave” granted.
  
  

1. Reduced work time.
   
   In this instance and as a direct result of the global pandemic, and the implementation from Government, disaster management procedures, the employer must have closed the business and sent the employees home, and this is then deemed to be a temporary layoff.
   
   Where the employer finds that the business has insufficient funds to cover the employee expenses, the employer may apply for this relief.
   
   This benefit is completely separate to other UIF benefits in place, therefore the normal rule that for every 4 (four) days worked the employee accumulates a day credit and the maximum credit days payable is 365 (three hundred and sixty five) for every 4 (four) years will not apply. For this reason, this particular benefit may not be claimed simultaneously with normal UIF benefits.
   
   The value of the benefit is equal (or capped at R3,500) to minimum wage of R3,500 (presently) per employee and may be claimed for the duration of the shutdown or a maximum of three months, which ever term is the shortest. Benefits payable can be calculated as the difference between what the employer pays and the amount normal UIF benefits be, should an employee lose employment.
   
   The disaster benefit is available to employers who are registered and make monthly contributions as is required by the Contributions Act of 2002.
   
   An extract of the communication from the department of labour on 26 March 2020 states the following, “Caring and responsible employers that are unable to pay the full salaries of the workers they send home for their health and safety due to the lockdown are encouraged to apply for the Covid-19 TERS Benefit from the UIF by sending an email to [email protected] from midnight tonight when the lockdown starts.”
   
   Documentation to be completed by the employer and others in order to apply for this benefit can be found on the Department of Labour website and lodged electronically.
   
   
   • UI-19 and UI2.7
   • UI2.1 b (only a UI2.1 found on the website)
   • UI 2.8 (bank form)
   • A letter from the employer confirming that the business is shut down or the employee’s temporarily layoff or reduced work time is due to the pandemic Covid19
   • Copy of the employee’s Id document.



2. Illness Benefit
   
   Where an employee is required to be quarantined for 14 days, the illness benefit will apply.
   
   Instead of the usual UI2.2, a confirmation letter from both the employer and the employee must be submitted with the application form to prove that both the employer and employee agree to this special leave, due to the pandemic Covid19.
   
   This letter replaced a medical certificate in the instance where the employee self isolates, without prior consultation with a medical practitioner. In the instance where the quarantine period exceeds 14 days, then a medical certificate from the medical practitioner must be submitted with the UI 3, continuation form.
   
   Documentation to be completed by the employer and others in order to apply for this benefit can be found on the Department of Labour website and lodged electronically.
   
   
   • UI-19 and UI2.7
   • A confirmation letter from both the employer and the employee must be submitted with the application form to prove that both the employer and employee agree to this special leave. (this letter replaces the UI2.2 below)
   • UI2.2 (part to be completed by medical practitioner)
   • UI 2.8 (bank form)
   • Copy of the employees ID document
   • UI3 Continuation form (If period exceeds 14 days)



3. Death benefits
   
   If one of your employees passes, the usual benefits are paid to the beneficiaries of the deceased.
   
   Persons eligible to apply for this benefit will be the Surviving Spouse, Life Partner, children, or a nominated person (In this order).
   
   Documentation to be completed by the employer and others in order to apply for this benefit can be found on the Department of Labour website and lodged electronically.
   
   
   • UI-19 and UI 53
   • UI 2.5 or UI2.6
   • Death certificate
   • Copy of ID document of deceased and applicant
   • UI 2.8 (bank form)
   
   
   The Department of Employment and Labour, Gauteng: UI has come up with the process to be followed by employers in distress due to the current pandemic as per the Directive issued by the UI Commissioner:
   1. Employers are required to use the attached spreadsheet to provide the details of the affected employees for the UIF staff to process the claims as per the UI Act 2001 as amended, 2002 and 2017. This will minimize contact between the public and the officials in compliance with the department of health advice.
   2. Employers are required after completing the employee’s information on the template to submit to the sender with relevant attached documents.
   3. Employers laying off or shutting down the company without any payments have to use code 14 (business closed) as reason for termination to avoid tedious administration process.
   4. Employers are expected to fill in Shutting down application spreadsheet, UI-19 if not declaring online, a letter explaining the reason for shut down, UI.2.8, UIF consent for the continuation of payment 2020.
   5. Due to the COVID-19, shortages in staff you might experience a slow response in finalizing your requests. Kindly be patient with the process.

Expansion of the ETI age eligibility criteria and value of claim

The main aim of the programme is to reduce the cost of hiring qualifying employees being young people between the ages of 18 and 29, by allowing the employer to reduce the amount of employees’ tax (PAYE) they pay to the South African Revenue Service (SARS), while leaving the wage received by the qualifying employees unaffected.

The ETI programme makes provision for the employer to claim the ETI in respect of a qualifying employee:

• between the ages of 18 and 29; and
• a monthly remuneration of less than R6 500.

The maximum monthly ETI claimable per qualifying employee is limited to R1 000 in the first year of employment and R500 in the second year of employment.

Further to the above, the monthly ETI can only be claimed for the first 24 months of the qualifying employee’s employment by an employer or associated institutions.

Due to the outbreak of COVID-19, Treasury made a proposal on 29 March 2020, that the likely result in the large scale disruption of work due to illness, self-isolation or quarantine and with the implementation of disaster management procedures, the employer must have closed the business and sent the employees home, and this being deemed to be a temporary layoff.

The impact on employment may be severe as businesses grind to a halt with the impact of reduced demand, disrupted business operations with a large portion of the workforce unable to present themselves for duty as well as the dealing with the impact of the restricted movement of customers in adherence to health measures aimed at slowing the spread of the virus.

Small and medium sized businesses are the most vulnerable as they are unlikely to have cash reserves or sustainable working capital and are thus at a higher risk of shedding jobs under these conditions in an attempt to remain going concerns and contain costs while generating very little income.

Moreover, the nationwide lockdown that became effective from 27 March 2020 will mean that, aside from a narrow set of essential services, many workers will not be able to report for work. During this time the majority of employers are likely to experience severely reduced revenue and may have to consider reducing staff numbers. In response to the COVID 19 outbreak, many countries around the world have introduced tax relief measures.

In order to minimize unemployment and the risk of the economy grinding to a halt during this difficult period, Government proposed expanding the current ETI to assist employers retain employees during this critical period of social distancing and lockdown, thus reducing the risk of low income earners losing their employment as a result of the outbreak.

In order to assist minimising job losses during this lockdown period, Government proposes expanding the ETI programme for a limited period of four months, beginning 1 April 2020 and ending on 31 July 2020 as follows:

• Increasing the maximum amount of ETI claimable during this particular four-month period for employees eligible under the current ETI Act from R1 000 to R1 500 in the first qualifying twelve months and from R500 to R1 000 in the second twelve qualifying months.
• Allowing a monthly ETI claim in the amount of R500 during this particular four-month period for employees from the ages of:
  • 18 to 29 who are no longer eligible for the ETI as the employer has claimed ETI in respect of those employees for 24 months; and
  • 30 to 65 who are not eligible for the ETI due to their age
• Accelerating the payment of employment tax incentive reimbursements from twice a year to monthly as a means of getting cash into the hands of tax compliant employers as soon as possible.

This expansion will, however, only apply to employers that were registered with SARS as at 1 March 2020.

Further to the above, the current compliance requirements for employers under sections 8 and 10(4) of the ETI Act will continue to apply.

Compensation Fund

Any employee who falls ill pursuant to exposure to Covid-19 at work will be entitled to claim from the Compensation Fund. Broadly speaking, claimants are required to include such compensation in their gross income for tax purposes.

The amount is, however, exempt from normal tax in accordance with section 10(1)(gB) of the Income Tax Act.