Issued by Ministry of Labour
Cape Town 2 March 2000
Ladies and Gentlemen
It is with great pleasure that I am releasing today the new Unemployment Insurance Bill.
The release of this Bill marks a new chapter in the history of the Unemployment Insurance Fund. It also represents the first steps in fulfilling the commitment I made in my 15-point programme of action, which I announced in June last year, to restructure the Fund. Unemployment insurance is an important policy area as it contributes towards the improvement of the social safety net to mitigate the economic hardships of the unemployed. Particular attention has been paid to extending unemployment insurance coverage beyond current levels, to enhancing the sustainability and cost effectiveness of the Fund and to creating an environment conducive to improved compliance.
Background
The need for the restructuring of the Unemployment Insurance Fund arises from the obligations placed on us by the Constitution, the policy environment of the Reconstruction and Development Programme as well as labour market policy considerations. Our approach has been informed by the Report of the Presidential Labour Market Policy Commission in 1996, International Labour Organisation country studies, as well as extensive consultation with our stakeholders.
The restructuring of the Unemployment Insurance Fund seeks to address the following shortcomings within the current legislation:
In 1996 a three-person task team comprising experts from labour, business and academia was appointed to perform a situational analysis of the administration of unemployment insurance, conduct a comparative analysis based on international norms and make recommendations regarding the findings and the financing thereof.
The task team recommended that:
In November 1998, after several reports were tabled on the financial status of the fund, cabinet approved the release of the task team report and public comment aimed at assisting the process of drafting new legislation on Unemployment Insurance and related matters.
In December 1998, I released the report on the restructuring of the UIF. The document was published in the Government Gazette, and I invited the public to make relevant submissions to the Unemployment Insurance Board, which I had tasked with the responsibility of drafting the new legislation. My intention in this regard was and has always been to ensure the participation of all stakeholders in the conceptualisation and realisation of the final product - the new Unemployment Insurance legislation.
On 2 February 2000, cabinet approved two new Bills, the Unemployment Insurance Bill and Unemployment Insurance Contributions Bill. The latter Bill deals with the collection of Unemployment Insurance contributions from employers and is intended to consolidate collections under a single administration. In this particular case, the South African Revenue Services will be given full responsibility for collection.
The Unemployment Insurance Bill will be administered solely under my Department and the Unemployment Insurance Fund will have the singular responsibility for the administration and adjudication of claims, a practice and approach which is in line with those adopted by similar institutions the world over.
Problems being addressed
The draft legislation which I am releasing to you today will address a number of difficulties currently facing the UIF as a result of weaknesses within the current legislation.
Key changes being introduced
The widening of coverage
Within the framework of the new legislation, coverage of workers within the labour market will be extended and, for the first time in the history of unemployment protection in this country, will include domestic workers, seasonal workers and employees earning above the current UIF annual income threshold of R93288. The inclusion of higher income groups as UIF contributors will be determined by a maximum income threshold to be determined from time to time by the law.
Graduated benefit schedule
When the UIF was first introduced in South Africa in 1946, the legislators intended that the income replacement ratios of the lowest paid workers should be much higher than those of the better paid. This graduated benefit schedule lasted until 1977, when it was replaced with the current scheme of 45% income replacement. It is proposed that this graduated benefit schedule be reintroduced and that benefits be based on income replacement ranging from 60% for low-income earners to 38% for the middle and high-income earners.
Delinking of maternity and unemployment benefits
Maternity benefits were first introduced by the UIF in 1954. A female contributor must be paid benefits for maternity leave, whether or not she is capable of and available for work. The UIF provides 45% of the last wage for a maximum period of six months. However, drawing maternity benefits means that women workers therefore use up their unemployment benefit. Given that it is obviously only women who apply for maternity benefits, this provision discriminates against women. The new legislation therefore proposes to eliminate this discrimination by separating maternity and unemployment benefits so that employees who go on maternity leave should do so without having to draw down their unemployment benefits.
Strengthening compliance and enforcement measures
The new UIF Bill seeks to address the legacy of high levels of employer default and non-compliance by proposing the introduction of tougher penalties and fines on those employers who fail to comply with the requirements and provisions of the law. This measure is further strengthened by the proposals to bring the UIF collection regime under the ambit of the South African Revenue Services (SARS) and its enabling legislation, the Income Tax Act (1962).
The Bill details wide-ranging measures aimed at dealing with aspects of non-compliance, such as under-disclosure of employee earnings, working and drawing, non-payment and deliberate misrepresentations. These measures are deemed sufficient to bring to an end the scourge of employer and employee fraud and will enhance our capacity to identify and prosecute defaulters.
Creation of a Contributors Database
It is further proposed that an electronic contributor database be created containing individual contribution records for each contributor. This will eliminate paper-based operations including the current Blue Card system. It will also eliminate the potential for fraudulent claims because each claimant can be pre-qualified for benefits, even before he/she reports to the offices of the Unemployment Insurance Fund. Above all, this measure will increase compliance by requiring employers to submit declarations of those in their employ, their income and any other detail that may be prescribed by the law.
Dispute resolutions measures
In as much as the intention of the draft legislation is to bring employers and employees into the extended coverage and compliance fold, there is also recognition of the right not only to dispute but also to the speedy resolution of any dispute arising from the decisions of either SARS or the UIF Commissioner. In this regard the Bills proposes two different avenues of dispute resolution.
All SARS disputes will be dealt with under the current provisions of the Income Tax Act while those arising from the decision of the UIF commissioner will be dealt with through the Commission for Conciliation, Mediation and Arbitration (CCMA) and the Labour Court, as is the case with other aspects of labour legislation.
Financial management and actuarial assessments
Government's approach to the Unemployment Insurance Fund is that, while it's primary role relates to providing a social safety net for the unemployed, the Fund should be able to finance its statutory obligations from the income generated from contributions and other sources available to the Fund. Only in exceptional circumstances of high unemployment arising from economic restructuring can the state be expected to assist during that particular transition. In the event that state funding may have to be requested, the Bill sets out clear and onerous procedures and requirements for such funding from the fiscus.
In order to ensure sound financial management and to address the uncertainties regarding the financial viability of the fund, the UIF Bill sets out clear rules and guidelines on financial management in line with the Public Finance Management Act (1999).
The Bill also proposes the requirement for the performance of annual actuarial assessments to determine the soundness of the Fund's finances and reserves to fund statutory commitments and to advise myself as the Minister of Labour on the available funding alternatives without having to resort to the fiscus.
Entitlement and Benefits
The Bill proposes the retention of all five statutory benefits, in other words, for Unemployment, Maternity, Illness, Adoption and Dependants. However, benefits will be accumulated and limited up to 34 weeks in any given four-year period. This measure will eliminate the loophole that exists in the current Act.
Conclusion
As you will realize from the aforementioned, my Department and I are very serious about addressing problems facing the unemployed.
It is our hope that the spirit of social partnership will prevail as we address our common objective of transforming the Unemployment Insurance Fund, which must be able to provide protection to the most needy and vulnerable members of our society.
Today, I release this Bill for public comment, debate and discussion and call on all interested parties to study it and forward their responses to the UIF Commissioner by 31 March 2000. I am also pleased to announce that I have already submitted the Bill to the Executive Director of Nedlac in compliance with the requirement of the Nedlac Act (1995). I look forward to a constructive process of negotiation between social partners and I pledge my full support in this endeavour.