REPRESENTATION BY THE PAYROLL AUTHORS GROUP TO THE
PORTFOLIO COMMITTEE ON LABOUR FOR THE PUBLIC HEARING ON THE UNEMPLOYMENT INSURANCE BILL (B3-2001)

1. Credentials of the Payroll Authors Group
The Payroll Authors Group was established in 1989 to represent the South African Payroll Industry. It consists of the authors of virtually all the commercial computerised payroll systems used in South Africa, as well as major employers who have written their own in-house payroll systems. Its purpose is to liase with those government departments who require contributions and returns from employers related to their employees, with a view to ensuring that the requirements of those departments can be successfully implemented on computerised payrolls.

The Group has had continuous and close liaison with South African Revenue Services (SARS) and their predecessors. In particular, the implementation of the SITE system and the recent introduction of electronic format tax certificates resulted in a great deal of input and discussion with SARS, and the successful implementation of these major procedures was due in large part to this input and discussion.

To a lesser extent, the Payroll Authors Group has had contact with OlD (previously WCA) officials as well as UIF officials over the years. The changes to the UIF procedures envisaged by the Bill under discussion will have a major impact on all employers, and in particular those using computerised payrolls. This is the reason for the Group taking a keen interest in developments, and having discussions with both the Department of Labour and SARS on the proposed reporting requirements.

The Payroll Authors Group represents approximately 50 000 employers using computerised payrolls, who in turn employ the majority of the formal work force in South Africa, other than employees of the national government.

2. Main areas covered by this submission
Our submissions are restricted to the following areas:
The proposed database to be maintained by the Commissioner
The definition of contributors and contributions
The calculation of benefits

In making these submissions, it has been necessary to make references to the Unemployment Insurance Contributions Bill, which is not before this committee for discussion, as it is a monetary Bill. Such references are for ease of understanding only, and are not intended to be taken as comments on that Bill.

Our comments are motivated not only by our concerns regarding the feasibility of some of the Bill's requirements, but also by a concern for the substantial additional load that the reporting requirements in particular will place on the small and medium enterprise (SME). It is not in the interests of our economy to place further onerous duties on such employers, and we fear that the requirements will cause many SME's to ignore their onerous duties under this Bill.

We are convinced that the acceptance of our proposals will result in a more user-friendly piece of legislation, without in any way detracting from the essentially good intentions of the Bill.

3. The Proposed database to be maintained by the Commissioner
It appears to us that the drafters of the Bill are perhaps understandably) not familiar with the concepts and requirements of a properly constructed database. Our discussions with officials from the Department of Labour on this subject indicate that insufficient thought has been given to the data that should be held in the database, and the practical difficulties that will be encountered in loading it and keeping it up to date.

We realise that the Bill itself gives only the bare outlines of what is to be contained in the database and the data to be supplied by employers, and that the detail of this must be finalised by regulation. We therefore will not be elaborating on the discussions that we have to date held with officials from the Department, and will merely draw the committee's attention to our considered opinion that if the proposals that have been made to date are implemented, the resulting database will not perform the functions intended by the Bill, and will lead to the following:

· A corrupt database that does not reflect the correct details of all contributors, with many duplications and omissions of contributors.
· A database that will make it easy for fraudulent claims to be made on the Unemployment Insurance Fund.
· A database that will be continually out of date, growing more out of date as every year passes.

The requirement for employers to submit 'changed' employee details on a monthly basis will generate large volumes of data files, and complicate the administrative process of validation, rejection and re-submission, and finally, updating of the database within a monthly cycle. This requirement must be simplified as far as possible, particularly if one takes into consideration that employers who do not have computerised payroll systems, also have to submit this information manually.

We therefore urge the committee to ensure that proper regard is had by the officials in the Department of Labour who will be responsible for the issuing of the necessary regulations to heed the advice of the Payroll Authors Group on the practical issues involved in the setting up and maintaining of this database. This advice is based on decades of experience with the computerised payrolls which employers will perforce use to make the necessary returns to the Department, and with intimate knowledge of what is practical.

We also go so far as to state that if the proposals that we are aware of are in fact legislated by regulation without major changes being made, it will be difficult for even sophisticated employers to comply with them, let alone the average employer. It is not our intention to burden this committee with the facts to support our contentions, but we would be happy to provide details if so requested. The members of the Payroll Authors Group will have to write computer programs to comply with regulations, so that employers will be able to perform the duties required of them. It is in our interests as much as in the Department's interests to ensure that a workable system results (as is the case with the electronic tax certificates that were designed and modified over the course of a full 12 months by SARS working with the Payroll Authors Group).

4. Contributors
There are discrepancies between the definition of contributors in this Bill and the latest version of the Unemployment Insurance Contributions Bill that we have been able to obtain. This is mentioned, in case the latter Bill contains the true intentions of the drafters.

The main discrepancy is that section 3(1)(e) of the Unemployment Insurance Bill before this committee (referred to hereafter as the main Bill) states that the Act does not apply to domestic and seasonal workers and their employers. The Unemployment Insurance Contributions Bill (referred to hereafter as the Contributions Bill) does not contain this exclusion.

Note that contributors may be non-RSA residents, and will therefore not be in possession of a bar-coded RSA Identity document.

Employee
The definition of "employee" in both Bills includes an employee as contemplated in paragraphs (a) and (b) of the definition of ''employee'' in the Fourth Schedule to the Income Tax Act.

Paragraph (a) of that definition includes a natural person who for all purposes other than that of deducting PAYE would not be regarded as an employee. For example, a freelance writer who submits occasional articles for publication by a newspaper or magazine and gets paid by them is an employee under this paragraph, but could hardly be regarded as one for UIF or labour law purposes. The author would have spent more than 24 hours in writing the article, so would not be exempted under section 3(1)(a).
Paragraph (a) of the Fourth Schedule definition also includes a natural person who would be regarded as an independent trader for all purposes other than that schedule. An example is a bookkeeper who writes up the books of a few clients on a monthly basis, for a fixed monthly fee. Because he/she is paid regularly, they would fall into the definition of an employee. Such an independent person is clearly not an employee for UIF purposes.

Thought should be given to this definition, to ensure that it only applies to genuine employees. Perhaps it would be best to remove all reference to employees defined by the Fourth Schedule.

Remuneration
The remuneration on which contributions are to be calculated and on which benefits are based is defined as in the Fourth Schedule, with certain exclusions. This is a welcome change from the definition of earnings in the present Act. It would be even better if there were no exclusions

For example, paragraph (c) of the definition excludes commission and dividends. ~y dividends are excluded is a mystery, as dividends are not included in the definition of remuneration). Paragraph (d) excludes what are commonly referred to as piecework earnings. No other ''variable" earnings are excluded. The exclusion of commission and piecework is unfair to workers paid by those measures. Should they become unemployed, they would receive a pittance in the form of benefits, as their main source of income would be excluded. These two exclusions should most definitely be removed, and may even be regarded as unfair discrimination and therefore unconstitutional.

Contributions
The position regarding the calculation of contributions to the Fund is most confusing. In the original version of the contributions Bill, reference was made to a threshold of earnings as contemplated in schedule 1 of the main Act. That schedule provided that the maximum contribution threshold was R 132 000, above which no contributions were payable. The latest version of the contributions Bill available to us contains no such limit, so that contributions will be payable on all remuneration, with no limit. In addition. the original schedule 1 of the main Bill has been done away with.

The only reference to a threshold in the main Bill now is in schedule 3, which is headed SCALE OF CONTRIBUTOR'S ENTITLEMENT TO BENEFITS. Paragraph (3) of that schedule reads:
Contributors and employers of contributors earning above the income threshold of R93 288 per annum shall contribute 1% of the threshold and such income contributors shall receive benefits payable at this threshold level.

It should be noted, incidentally, that this threshold is less than the current threshold for UIF contributors, which is R97 188, and one wonders why this has been reduced.

It is most unsatisfactory that such an important item should be dealt with in this manner. While it is possible that a new version of the Contributions Bill will correct this matter, there should be certainty at this stage before the main Bill is passed as to whether or not there will be a limit on the amount on which contributions are calculated, and this should be a dealt with in the main body of the Bill. If it is indeed intended that there should be no limit on contributions, this raises a whole new area of contention in that the costs to employers would be escalated beyond a reasonable level.

5. The calculation of benefits
Benefits are based on an employee's daily rate of pay, which in turn is based either on his fixed rate of pay or, if the rate of pay varies, the average rate of pay calculated on the last 6 month's remuneration.

For reasons associated with the compilation and maintenance of the database, it would be easiest for employers if an annual return was made for updating the database, using the annual electronic tax certificates that are rendered by employers to SARS. This would have the additional advantage of being correct, as SARS has the means to ensure that employers return the correct information. On a monthly basis, employers need only to submit details of employees who started employment, and those who left employment. This would give the UIF Commissioner all the data he needed to correctly and accurately calculate daily earnings.

Because this is a technical issue concerned with the database and returns by employers, we will not elaborate on it further. It is mentioned so that our following argument can be understood.

It is becoming more common for employees to not have a basic rate of earnings each week or month. Even if they do, overtime earnings distort this rate, so that we feel that the basic rate of pay should not be used to calculate the daily rate to be used for benefit purposes.

If the database was to be updated as we have suggested, it would be a simple matter for the computer to calculate the rate of pay for an employee, based on his annual earnings (or lesser period if employed for less than one year). All "irregular" earnings (like bonuses, overtime, commission and piecework) would be included, so that a true average rate would be obtained. This would be fairer than using a basic rate, as an employee lives on his total earnings, and not just on his basic rate of pay. It would be most unfair to employees earning a substantial part of their total pay in the form of such variable earnings to have them disregarded for benefit purposes, especially as contributions would be based on total earnings. We emphasise that a proper use of a computerised database would make this a trivial computer calculation.

We then come to the benefits payable. Schedule 2 to the main Bill is headed MATHEMATICAL CALCULATION OF CONTRIBUTOR'S ENTITLEMENT. It consists of what is no doubt an erudite treatise on a ''rectangular hyperbola", but we have so far not found anyone who understands what the schedule is about.

While it may be mathematically correct (which we cannot establish), it is bad law to incorporate formulae which nobody other than a mathematical specialist can understand. How is a worker to understand how his benefit has been calculated, and how is a clerk in the Department of Labour to explain it to him? We feel very strongly that this schedule should be replaced in its entirety by a simple scale of benefit rates, based on levels of remuneration. While the ''mathematical boffins" in the Department of Labour may use an incomprehensible formula of this type to calculate amendments to that scale from time to time, under no circumstances should it form part of the law.
We feel very strongly that it would not be in the interests of transparency and simple understandable legislation for this schedule to be retained in its present form.

6. Conclusion
We have set out our main objections and suggestions regarding the Bill under discussion. There are other minor points which need attention, but we do not wish to burden the committee with them as they are not of major importance.

To summarise, our recommendations are as follows:
· The regulations for the database should be agreed with the Payroll Authors Group, with a view to ensuring the integrity of the database and making it possible for employers to comply with the requirements of the Act.
· Ensure that the definitions (in particular, that of a contributor) in the Contributions Bill do not differ from those in the main Bill.
· Amend the definition of employee so as not to refer to the Fourth Schedule to the Income Tax Act.
· Do not exclude commission, dividends and piecework earnings from the Fourth Schedule definition of remuneration.
· Clarify the threshold above which contributions are not payable.
· Use an employee's actual earnings (and not his basic rate of pay) to calculate the daily rate of pay to be used for the payment of benefits.
· Scrap schedule 2 to the Bill and replace it with a simple scale of benefit payment related to earnings levels.