UIF

The code used to reflect UIF (Unemployment Insurance Fund) on the IRP5/IT3(a) form in South Africa is code 4141 as issued through the Business Requirement Specification from SARS.

The monthly UIF Remuneration threshold increased to a maximum threshold of R17 712 per month (R212 544 per year) from 1 June 2021. This means that UIF should be calculated on Remuneration up to the amount of the threshold. Commission is specifically excluded from this Remuneration.

Payment of contributions

Section 8 and 9 of the Unemployment Insurance Contributions Act, prescribed to the employer to which Commission he is obliged to pay the UIF monthly contribution.

Section 8 prescribed that if the employer is registered at SARS for payroll taxes, then such employer is obliged to pay the UIF contribution to SARS monthly by using the process associated to the EMP201 monthly return.

Section 9 prescribed that if the employer is not registered at SARS for payroll taxes, has not registered voluntarily at SARS for said taxes and is not liable for SDL, such employer is obliged to pay the UIF contribution to UIF Commissioner monthly.

Furthermore, section 8(3) and 9(4) both prescribed that if the employer has made the UIF contribution payment to either SARS or UIF Commissioner incorrectly, that he must be refunded.

Therefore, as a result of the above, the UIF contributions should be made to the relevant authority prescribed in section 8 and 9. Where the contribution was made in error to the incorrect authority, the situation should be corrected by declaring the correct UIF contribution amount to the corrected authority.
This action would then result in penalties and interest being levied by the authority for the late payment of the contribution, however, a request for the waiving of this penalties and interest must be made with the proof that the contribution was originally paid to the incorrect authority.
Furthermore, the incorrect authority should be requested to refund the UICF contributions paid incorrectly to them to the employer.

The UIC Act does not give the employer any permission to pay UIF where the employer was obliged to pay SARS.

In terms of the Unemployment Insurance Act (not the Unemployment Insurance Contributions act), the employer must also register at UIF for purposes of section 56 of that Act:

56. Information to be supplied by employer.—
(1) Every employer must, as soon as it commences activities as an employer, provide the information referred to in subsection (2) regarding its employees to the Commissioner, irrespective of the earnings of such employees.
(2) The information contemplated in subsection (1) must—
(a) include the street address of the business, and any of its branches, of the employer;
(b) if the employer is not resident in the Republic, or is a body corporate not registered in the Republic, include the particulars of the authorised person who is required to carry out the duties of the employer in terms of this Act; and
(c) include the names, identification numbers and monthly remuneration of each of its employees, and must state the address at which the employee is employed.
(3) Every employer must, before the seventh day of each month, provide the Commissioner with all information for the previous month in terms of subsection (1).
(3A) The Minister will issue regulations on a special dispensation applicable to domestic employers and small businesses or enterprises regarding the submission of information in subsection (3).
(4) The Commissioner may request the employer to provide such additional particulars as may reasonably be required to give effect to the purpose of this Act within 30 days of the request, or within such extended period as the Commissioner may allow.

Therefore, if you are obliged to pay UIF to SARS, you are still obliged to register for UIF declaration purposes at UIF as per section 56 above.

Furthermore, in terms of section 10(2) of the Unemployment Insurance Contributions Act, the Minister has made a regulation that employers must submit information of their employees to the UI Commissioner on a monthly basis (irrespective of where the employer is obliged to register for UIF purposes). This regulation was published in Government Gazette Notice No. 23651 (R987) dated 19 July 2002).

UIF claim when retire

An employee who has contributed towards UIF and is obligated to retire at the age of 65 are eligible to claim UIF.

Should such an employee re-enter the employment market after retirement, such employee will again be obligated to contribute towards UIF.

The Unemployment Insurance Contributions Act, does not provide an exemption for previous retired employees or due to age.

Remuneration

In order to explain this, we have to look at the legislation.

Worked or employed is not part of the criteria of determining whether a person is an employee. The only component that must be determine is whether or not such a person receive remuneration. If such a person received remuneration he/she is defined as an employee in terms of the relevant Acts.

An employee is defined in the Unemployment Insurance Contributions (UIC) Act as:
“employee” means any natural person who receives any remuneration or to whom any remuneration accrues in respect of services rendered or to be rendered by that person, but excludes an independent contractor

This means that whether or not they worked for the company, if they receive remuneration as defined, then they are an employee.

Remuneration is defined in the UIC Act as:
“remuneration” means remuneration as defined in paragraph 1 of the Fourth Schedule to the Income Tax Act, but does not include any amount paid or payable to an employee

This definition basically refers you to the definition in the Fourth Schedule which is:
“remuneration” means any amount of income which is paid or is payable to any person by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument, pension, superannuation allowance, retiring allowance or stipend, whether in cash or otherwise and whether or not in respect of services rendered, including-….

Commission is specifically excluded from UIF Remuneration.

This means, if you pay a person an allowance for services (attending of meetings, etc.), such an allowance is remuneration as defined and such a person is an employee as defined due to the fact that such a person are paid remuneration.

Therefore, if the person is employed for more than 24 hours a month, UIF is deductible from the remuneration so paid. The word employed is referred to in the UIC Act and not physical working hours. This is the main reason why you need to have an employment contract stipulating what the hours are than an person is employed for any specific month/period.

The dictionary definition of employed means to hire or engage the services of a person. By using family members to attend meetings, the company are engaging the services of such members.

In terms of the provisions of the UIC Act and the Fourth Schedule, the person does not have an option to elect whether or not to be an employee as defined in the relevant definition of the Act, therefore, the statement that “the persons do not want to be regarded as employees is not a fact that can be taken into consideration as the Act is clear on when it is defined as an employee.

Mutual separation agreement court cases

A growing trend of terminating the employment relationship is the conclusion of a mutual separation agreement (“MSA”), which envisages the termination of employment by mutual consent between the employer and the employee. This is neither a resignation, nor a dismissal. In his book entitled Workplace Law 8 ed (Juta Cape Town 2005) at pages 84 and 85, Professor John Grogan remarked as follows regarding this form of termination of employment:

“Just as the consensus of the parties brings the employment contract into existence, so too consensus may end a contract… [this] does not constitute a dismissal for the purposes of the common law or the LRA.”

Section 16(1)(a) of the Unemployment Insurance Act 63 of 2001 (the “UIA”) provides that a contributor is entitled to claim unemployment benefits only for the reason for the unemployment due to termination of a fixed term contract, dismissal or insolvency. Since the termination of employment in terms of an mutual separation agreement does not constitute dismissal, does it then mean that the employee cannot claim unemployment benefits? This issue was brought before the Labour Court in the recent case of Swanepoel v KPMG Services (Pty) Ltd (J494/19) [2021] ZALCJHB 457.

The facts, briefly, of the Swanepoel matter are that Swanepoel was terminated in terms of an MSA as a means to avoid potential disciplinary process for his poor work performance. His employer, KPMG, recorded “involuntary resignation” as reason for termination on his UI19 form, whereupon which Swanepoel approached the Labour Court to compel KPMG to amend the reason for termination on his UI19 form to ‘retrenchment’, to enable him to claim unemployment benefits.

The court scrutinised the background and wording of the MSA and concluded that it was clear that the contract of employment terminated on a mutual basis. The court further referred to section 64(1) of the UIA which stipulates that it is a criminal offence for employers to misrepresent the nature of the reason for termination in order to assist the employee in qualifying for the fund benefits, and that Swanepoel was asking the court to compel KPMG to commit the said criminal act. The court made it clear that it cannot compel an employer to commit a criminal offence by way of such misrepresentation and concluded that it lacked jurisdiction to adjudicate the matter.

The Labour Court dismissed Swanepoel’s claim, holding that it was ill-conceived and unjustified. Notably, the court observed that KPMG’s recordal of “involuntary resignation” of Swanepoel’s UI19 also constituted false entry and, consequently, a criminal act in terms of section 64.

This decision not only serves as a caution to employees seeking to enjoy unemployment insurance benefits consequent to termination of employment in terms of an MSA but also to employers against misrepresenting the true reason for termination.

Certain categories of individuals are not required to contribute to UIF. These include:
1. Employees who work less than 24 hours a month for an employer.
2. Employees who are under the age of 18 or over the age of 65
3. Employees who are employed by the South African government.
4. Employees who are foreign diplomats or members of their staff.
5. Employees who are employed by foreign governments or international organizations and are exempt from paying tax in South Africa