20 March 2001
Business South Africa, which represents almost all the major chambers of commerce and industry and employers’ organisations in South Africa, welcomes the opportunity to comment on the Unemployment Insurance Bill, 2001. As the representative of organised business at NEDLAC BSA is a party to the report prepared by NEDLAC on the Bill.

The purpose of this memorandum is not to change in any way the agreement reached at NEDLAC and contained in the report but to underline certain aspects of that agreement which BSA considers to be particularly important. These are dealt with in turn below.

Unemployment Insurance Contributions Bill
NEDLAC considered the Unemployment Insurance Bill (UIB) and the Unemployment Insurance Contributions Bill (the Contributions Bill) at the same time because the Contributions Bill provides the necessary funding for the benefits payable under the UIB.

BSA has noted with concern that, as far as it has been able to ascertain, the UIB is being considered in Parliament without the Contributions Bill.

The two Bills are entirely dependent on one another and it is submitted that the Portfolio Committee should not conclude its deliberations on the UIB until the Contributions Bill has been made available to it.

Inclusion of higher paid employees
Unlike the current Act, the UIB covers higher paid employees. According to Schedule 3 to the Bill a ceiling of R93 288 (called a threshold in the Bill) will apply to benefits payable under the UIB and to contributions with employers paying 1% of earnings and employees another 1% of earnings. Without the Contributions Bill it is impossible to say with certainty however whether or not the same earnings ceiling would apply to contributions and whether the same rate of contributions would apply to all employees.

BSA supports the provisions of the Bill which will have the effect that employees earning more than a certain earnings ceiling will be included as contributors but only up to the level of that ceiling. BSA’s support is however subject to an important qualification which, as indicated above, has been embodied in the Bill. This is that the same limit should apply to the earnings ceiling which would attract contributions and to the earnings ceiling which would attract benefits.

In BSA’s view it is vitally important that the same level should apply both to contributions and benefits. Only in this way could the UIF be viewed as treating all categories of employees fairly. It is also important for simplicity and transparency that the same ceiling should apply to contributions and benefits. By using the same ceiling it would be possible not only to increase the income of the UIF but also to give practical implementation to the principle of solidarity among employees.

BSA supports that the reliance placed in the Bill on ILO Convention No. 102 of 1952 in determining the ceiling. In line with the Convention the ceiling used in the Bill is that of a skilled employee which is currently R93 288 per annum. BSA supports the continued use of the skilled manual employee as the benchmark for setting the ceiling.

Progressive benefit structure
According to clause 12 read with Schedule 3 the Bill would provide a progressive benefit structure in terms of which lower paid employees have a higher income replacement ratio (IRR) than higher paid employees. The ratio will vary from about 59% of income for employees earning R150 per month to 38% for employees earning R7 774 per month.

BSA supports the concept of a progressive benefit structure under which lower income earners would have a higher IRR than higher income earners. BSA’s support is subject to an important qualification which has been accommodated in the Bill. This is that in the interests of fairness the IRR of 45% of earnings which applied under the current Act to all contributors should apply to the average earnings of contributors to the UIF. The IRR of 45% provided for in Schedule 3 would apply to employees earning R3 000 per month which, as far as could be ascertained, is approximately the average earnings of contributors. In this way contributors earning about R3 000 per month would not be prejudiced by the change to a progressive benefit structure.

Financial position of UIF
At NEDLAC the parties noted that a comprehensive actuarial valuation of the UIF would be possible only once more accurate data was available. It was therefore agreed by the parties that the following process should apply:
(a) A data-base would be established with the assistance of the International Labour Organization and implemented when the new law came into operation.
(b) An actuarial valuation would be undertaken two years later together with a review of the institutional framework.
(c) The contribution rate would remain at 2% with the employer and the employee each contributing 1% of earnings. If an increase in the contribution rate were necessary it would be subject to negotiation.

It was noted that for some time the UIF had been operating with a very considerable overdraft. It was agreed at NEDLAC that government would both provide a grant to repay the current overdraft of the fund and stand as guarantor for deficits of the UIF in the transitional period of two years.

BSA submits that these arrangements should be recorded in the Bill so that when the Bill becomes law the UIF is able to operate on a financially viable basis and does not have to carry forward and repay the considerable debt of the UIF under the current Act.

The UIF is clearly in need of restructuring to meet the demands of changed circumstances. If the new legislation is to enjoy widespread support it would be necessary to ensure that its provisions are fair to all categories of employers and employees. In this way the problems which have beset the UIF for many years may be overcome under the new law.

BSA considers that the Bill meets these challenges and supports the Bill, subject to the aspects referred to above.