Warning! UIF salary top-up shortfall shocker
29 April 2020 | Web Article Number: ME202018957
WITH the payment of the first COVID-19 Temporary Employee / Employer Relief Scheme (TERS) benefits, various misunderstandings have come to the forefront, writes Juanita Steenekamp, Project Director: Tax for the South African Institute of Chartered Accountants (SAICA).
Following the President’s announcement on 23 April 2020, employers and employees assumed that the UIF would top up salaries to the salary that the employee would ordinarily receive.
The Directive published by the Minister of Employment and Labour, the COVID-19 TERS as amended states that the total of the benefit together with any additional payment by the employer in any period may not be more than the remuneration that the employee would have ordinarily received (clause 3.5).
This led to the conclusion by employers and employees that the UIF will top up the remuneration of employees. For example, where an employee receives a normal salary of R6 000 and the employer can now only pay the employee R2 800, the expectation was that the UIF TERS benefit would cover the R3 200 - that is, the difference between the maximum salary of R6 000 that the employee would have received and what the employer can now pay.
Salary paid by employer R2 800
Anticipated UIF TERS benefit R3 200
Total received by employee R6 000
This is unfortunately not the way that the UIF is calculating these benefits.
Based on feedback from the public where UIF TERS benefits were already paid, as well as calculations performed using the UIF formula for benefits, SAICA can confirm that the following is the actual calculation:
For a salary of R6 000 where the employer pays the employee a partial salary of R2 800 the UIF TERS benefit for 35 days is:
The UIF TERS benefit = R3 500 (which is the National Minimum Wage) divided by 30.414 days (which is the average number of days per month used by the UIF) = 115.07 (which is the National Minimum Wage per day), x 35 days (from 27 March to 30 April - all days counted) = R4 027.45
Less amounts paid by employer: R2 800 / 30.414 x 35 = R3 222.20
The UIF TERS benefit to be paid = R805.25
Employers that were calculating it incorrectly need to immediately correct their payroll and engage their staff, especially where staff were under the impression that the UIF TERS benefit would top up their salary, and employers paid them on this basis before receiving the TERS benefit from the UIF.
SAICA is also of the view that employers that claim the UIF TERS benefit without informing the UIF that they are paying a portion of the salary and then later top-up the salary are not acting within the requirements of the legislation as the UIF specifically requires employers to inform them if they can afford to pay a portion of the salary.
Using the previous example, if the employer could not pay the employee at all and therefore only claimed the UIF TERS benefit, the employee would receive the benefit of R4 027.45 for 35 days.
TERS benefit = R3 500 (National Minimum Wage) divided by 30.414 days (which is the average number of days per month used by the UIF) = R115.07 which is the National Minimum Wage per day x 35 days (from 27 March to 30 April - all days counted) = R4 027.45
UIF TERS benefit to be paid = R4 027.45
The employer cannot now top-up this amount with R1 972.55 to ensure that the employee receives a total salary of R6 000.
Employers and employees need to take note of the difference when calculating the UIF TERS benefit and ensure that they account for the UIF TERS benefit correctly.
Relief for employees who were requested to take paid annual leave
The Minister of Employment and Labour, Minister Thembelani Nxesi, introduced the COVID-19 Temporary Employer / Employee Relief Scheme (TERS) benefit in a Directive (GG 43161) on 25 March 2020 in order to assist employees who had to be laid off temporarily, either partially or totally, due to the COVID-19 pandemic. The UIF COVID-19 TERS benefit has been implemented for the payment of benefits to contributors who lost their income due to COVID-19.
Some employers have required employees to take paid annual leave and once paid leave is depleted, the employees will be temporarily laid off and the employer will have to assist by claiming the COVID-19 TERS benefit. The Minister stated that employers could require employees to take paid annual leave, where the leave is available, and, should the lockdown be extended, employers will utilise the COVID-19 TERS benefit.
This means that employees will be forced to take all their paid annual leave and will have no annual leave left after the pandemic.
The Minister amended the COVID-19 TERS Directive on 16 April 2020 and the amendments now allow employers to claim the COVID-19 TERS benefit where employees were required to take annual leave in terms of section 22(10) of the Basic Conditions of Employment Act (BCEA). Previously employers could not claim the TERS benefit if employees were required to take paid annual leave.
There seems to be an error on the amended Directive as it refers to section 22(10) of the BCEA and there is no section 22(10) in the Act. Section 22 of the BCEA deals with sick leave. It would however seem as if the Minister is referring to section 20(10) of the BCEA which refers to annual leave taken in accordance with an agreement between the employer and employee or annual leave taken if there is no agreement at a time determined by the employer.
The amendment to the Directive includes a new clause 5.4 which allows an employer who required an employee to take annual leave during the lockdown period in terms of section 20(10)(b) (presumably the correct section number) of the BCEA to set off any amount received from the UIF in respect of the COVID-19 TERS benefit against the amount paid to the employee (paid leave) provided that the employee is credited with the proportionate leave payment in future.
The new clause 5.5 also allows the employer to pay the employee as a matter of urgency and to set off or reimburse such COVID-19 TERS benefits now already.
The changes will allow employers to credit the paid annual leave with the COVID-19 TERS benefits received. The basis of the credit will however still have to be seen as the COVID-19 TERS benefits would not be equal to the full paid salary, as the benefits are calculated on 38% to 60% of monthly salary capped at R17 712.
The practical implication is that the employee received paid annual leave for 30 days to the value of a monthly salary of R9 523, but the COVID-19 TERS benefit claimed would only be R4 031.
The question that is not addressed or prescribed is whether employers will only credit the leave to the value of R4 031 to the employee’s leave balance or the total amount of leave days taken. The Directive (as amended) only states that “the COVID-19 benefit must be set off against the amount paid to the employee in respect of annual leave provided that the employee is credited with the proportionate entitlement to paid annual leave in future.”
The actual practical implication of how employers deal with this are therefore still not clear.