Big or small, all employers must register for Unemployment Insurance

Many smaller businesses and low-level employers assume that the size of their business and/or the number of their staff has a bearing on whether they are liable to contribute to the Unemployment Insurance Fund (UIF) or not.

As a point of departure it is important for all employers to know that UIF is regulated by legislation which states that all employers must register for UIF except in instances where the business has:

  • Employees working less than 24 hours a month;
  • Learners under a learnership as defined in the Skills Development Act;
  • Foreigners working on a contract basis who will, after expiration of their contract leave the country;
  • Workers who only earn commission;  and
  • Public servants employed by government.

This means that every employee but for those mentioned above, must be registered for UIF.

Two ways of registering exist (and it is important to note that the employer does not have a discretion in choosing with whom to register). Firstly, those employers who are registered with SARS to pay employee’s tax (PAYE) must also register directly with SARS for UIF purposes, while secondly, those employers who are not liable to effect PAYE deductions from employee’s salaries must register directly with the UIF. The latter can be done by approaching the nearest Department of Labour or by faxing, posting or emailing the relevant forms to the Fund. All Employers registering with the Fund are required to fill out an “Application as an Employer” form or the UI-8, as well as accompanying forms which may be obtained from the Department of Labour or downloaded from their website.

Once registered, a monthly contribution of 2% for each employee is payable before the 7th day of each month. If the 7th day falls on a public holiday or weekend, contributions must be made on the last business day before the holiday/weekend. The employer must deduct 1% from the employee, and the other 1% is the employer’s contribution. In making these deductions, the employer may not deduct more than the prescribed amount from the employee, ask a fee for making contributions on behalf of the employee nor deduct any outstanding amounts from the employee when the employer falls behind with payment. The rule is that collecting contributions is the employer’s responsibility and if an employee falls in arrears with his contributions after a financial year end, the employer is liable for the contributions.

Also of importance when calculating the monthly contribution is the fact that the contribution only applies to that part of an employee’s salary not exceeding R14,872. This means that if an employee earns more than this amount, the amount in excess of R14,872 is not taken into account for purposes of the monthly UIF contribution. This amount is annually updated and employers are advised to keep track of any notices in the Government Gazette relating to the change in the salary threshold for UIF calculation purposes.

Similarly, employees are also advised to keep track of their UIF deductions as reflected on their payslips. If your employer is deducting more than the required minimum, you are entitled to a refund from your employer of those deductions made in excess of the required minimum.

Employers, irrespective of the size of their staff complement, are advised to register their employees for purposes of UIF. Legislative sanctions address non-compliance in that an employer may be charged interest on outstanding amounts. In addition to this interest, a penalty of 10% of unpaid amounts can be charged.

Employers are also advised to avoid trying to contractually circumvent their UIF obligations. As an employer, you cannot elect to pay your employee a lump sump upon termination of his employment contract in exchange for not registering such employee for UIF, nor can you elect to pay to the employee upon his exit the equivalent amount that you would have had to contribute on a monthly basis to the Fund.

If you are an employer and have not yet registered with UIF it is advisable to do so as soon as possible and make the necessary arrangements for addressing outstanding amounts. If you are unsure on how to proceed, it may be advisable to obtain the advice of a labour professional.

August 24, 2014
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