COSATU’s Comments on the Unemployment Insurance Bill
1.7 Against, this background COSATU welcomes the tabling of the Unemployment Insurance Bill (hereafter the ‘Bill’). South Africa currently faces high unemployment rates. Given the high levels of unemployment and job losses prevalent in the economy, iWhen we responded to the Draft Bill placed before Nedlac for negotiations in March 2000, we argued that it wast is critically important that the Unemployment Insurance Fund (UIF) be transformed in such a way:
that it provides adequate and accessible benefits to all workers, particularly to the most vulnerable low paid workers, and
that its finances are structured in such a way as to ensure an adequate flow of contributions from workers, employers and the state. In addition, the finances should be structured in a way to ensure the Fund is stable.
1.8 Together with the two other Federations represented in Nedlac, COSATU argued that tAgainst, this background the labour movement welcomes the tabling of the Unemployment Insurance Bill (hereafter the ‘Bill’). The Bill containeds positive elements such as de-linking maternity benefits from unemployment benefits; the improvement of the benefit period; widening the scope of the UIF to include previously excluded workers such as high-income earners; and application of the principle theof a progressive scale of benefits. These proposals, which labour support, improved the current situation and to a certain extent gaive effect to elements of the UIF Task Team report that labour supported. However, labour stated that there awere areas of substantive concerns with elements of the Bill, which must needed to be addressed if the Bill is was to fulfill its mandate. Among others these included, exclusion of domestic workers and public servants; the role of the state as an underwriter and the nature of the board. These key concerns still remain to be addressed, along with a number of other issues.
1.9 The negotiations on the Bill in Nedlac did result in some significant advances. Nevertheless there are a number of important unresolved issues which Parliament needs to apply its mind to, as well as a number of questions which were not addressed in the Nedlac process, but which have been raised by other organisations.
1.10 The main outstanding issues, which we address in this submission, include:
The role of the state in financing and guaranteeing the Fund;
A 2 year transitional period aimed at establishing the impact of reforms on the Fund’s finances, and a reconsideration of contributions, benefits etc based on an actuarial evaluation;
Inclusion of public sector, domestic, seasonal, and atypical workers;
2. The Process of drafting the BConsidering the Billill
2.1 The UIF Bill has followed a protracted and slow path before its introduction in Parliament this year. Having identified the need for radical restructuring of the UIF, in particular to extend its coverage and improve its level of support, the Ministry of Labour, on the advice of the 1995 Labour Market Commission, appointed a task team charged with developing a new policy framework. Appointed in June 1996, the Task Team concluded its report in December 1996. The report, however was only published for public comment in February 1999. A draft Bill was released for public comment in March 2000. The Bill was then tabled in Nedlac for negotiation.
2.2 The Unemployment Insurance draft Bill was, at the request of labour and business, negotiated jointly with the Draft Unemployment Insurance Contributions Bill (UIC Bill) on the basis that they constituted one package. The Nedlac negotiations commenced in April 2000 and were concluded in August 2000. Apart from attempting to identify areas of agreement, and resolve areas of disagreement, as is normal procedure, the negotiators faced the challenge of attempting to assess the financial implications of proposals for restructuring of the Fund, and the current state of the Fund. This difficult task was complicated by the lack of adequate information required to conduct an adequate actuarial evaluation. The ILO was commissioned to conduct a preliminary actuarial assessment to assist the process.
2.3 Because of the lack of adequate accurate information it was not possible to satisfactorily conclude a number of questions. It was agreed that a comprehensive actuarial valuation would be undertaken in 2002, and that at the end of this period, a holistic review would be undertaken in which a number of issues would be considered, including the scale and duration of benefits, the institutional structure of the UIF, the states role in funding the UIF etc. During this interim period the state would provide bridging finance, and stand as guarantor for the fund. The significance of this agreement to have a transitional period is outlined below.
2.4 Much of the negotiation in Nedlac focused on securing agreement on broad principles. The negotiating team did not attempt to do detailed drafting. Where issues of principle have not been captured in the Bill, we propose an approach to drafting in a number of areas. This should not be seen as undermining the Nedlac agreement, but rather ensuring that the spirit of that agreement is captured in legal drafting. In line with the Nedlac protocol, where the agreement is silent on particular questions we have reserved our right to raise them as new issues.
2.5 Labour argued that the splitting of the UI Bill into two Bills was unnecessary, and undermined the cohesion of the legislative process. This view has been vindicated by the fact that the Unemployment Insurance Contributions Bill has not yet been tabled in parliament. It is no secret that the Treasury is hostile to what they regard as dedicated levies, such as national health insurance and the skills levy. In the case of the Skills Levy Act, they resisted and nearly derailed introduction of the Skills Levy, finally reducing it to half of the agreed amount. We outline below our concerns about what appears to be a resistance to implement the financial elements of the agreement on the UI Contributions Bill. It is therefore of some concern that informally we are being told that the Treasury only intends introducing this Bill in June at the earliest. We remain of the view that these two Bills are a package, and that they need at the very least to be dealt with together. Our preference is that the provisions of the UI Contributions Bill be dealt with in this Bill. There is no need to have a separate Money Bill, since there are no new levies being introduced, and the level of contribution to the UIF remains at 1% for employers and workers respectively. The other matters in the UI Contributions Bill dealing with administration of the Fund can also be easily integrated into this Bill.
2.6 Recommendations: The UI Bill and the UI Contributions Bill should be merged into one Bill. Failing this they need to be considered simultaneously. In this event, Parliament should request the Treasury to urgently expedite finalisation of the UI Contributions Bill.
A Task Team comprising of three-a-side was established by the Labour Market Chamber to consider the Bill and revert to the Chamber. The following constitute labour’s submission into the NEDLAC process. It represents the views, of the three Federations, namely COSATU, FEDUSA and NACTU. A more detailed document proposing legal amendments to address the concerns raised in this submission will be supplied in due course.
As stated in the previous Task Team meeting, we believe that the Contributions Bill should be considered simultaneously with the UIF Bill. The Contributions Bill is crucial as it provides a framework for the financing of the UIF. In our view the Contributions Bill should not be considered as a money bill in terms of section 77 of the Constitution. Section 77 of the Constitution defines a money bill as a bill that "appropriate money or imposes taxes, levies or duties."
The main motivation for this argument is that the UIF is a social insurance financed by contributions by employers and workers. It is doubtful whether such contributions constitute a tax. In addition, the contributions go to the UIF rather than to the state. Although, the contributions from SARS have to be paid into the National Revenue Fund, the total amount of such contributions is a direct charge against the National Revenue Fund for the credit of the UIF. In terms of the note to section 77 of the Constitution any Bills which provide for direct charges against the National Revenue Fund are not money bills as defined in section 77(1) of the Constitution.
Further defining the Contributions Bill as a money bill would severely limit the powers of the Board. In our view, the Board should have full executive powers as discussed below. As such, the Contributions Bill should be part of the Bill rather than a separate Bill.
3. The transitional period and the states role in securing the fund
3.1 As indicated above, the current financial crisis of the Fund, and the lack of reliable statistical information about the Funds obligations, projected income and liabilities, makes it difficult to assess the impact of the Bill’s proposed changes on the position of the Fund. Issues such as the possibility to radically expand the scale and length of benefits, expansion of the scope of the Fund, and its long term funding model, including the scale of state funding required- need far more effective information and systems, before reaching meaningful conclusions. It was therefore agreed in the Nedlac process that an interim period of two years was required, after which a holistic and comprehensive review on these and other issues would be conducted.
3.2 The preliminary actuarial evaluation did identify that certain reforms proposed by the Draft Bill would assist in improving the position of the fund. These included the incorporation of higher income earners as contributors. Certain of the proposals advanced by the UIF task team, however, which were not incorporated in the Draft Bill, in particular the proposed inclusion of public sector workers as contributors, and the proposed role of the state in guaranteeing and topping up the Fund, would need to be accepted if the Fund’s position were to be stabilised.
3.3 Nevertheless, even if these proposals were accepted, it was not possible to say with certainty, what the medium to long term position of the Fund would be, based on the reforms proposed by the Bill. Therefore the Nedlac negotiators took a three pronged approach to accommodate this reality
to suspend discussion on further changes to the structure of the fund, pending the comprehensive actuarial review after two years. This included discussion about possible changes in the levels of contribution and benefit structure;
to agree that government would provide finance for the fund, and stand as guarantor during this period;
Questions about the institutional structure of the fund, and whether the Board would take the shape of a more autonomous structure such as SARS, would only be dealt with after this period.
3.4 The notion of a holistic review, combined with a comprehensive actuarial evaluation of the Fund, was therefore central to the agreement which was reached at Nedlac. From labour’s side, a number of serious reservations were suspended on this basis, on the understanding, that a number of issues would be dealt with in the review process. This led to labour demonstrating a high degree of flexibility in the negotiations, on the understanding that certain questions could only be dealt with in any detail once the financial position of the Fund, and the implications of various proposals could be more accurately assessed.
3.5 It is therefore of serious concern to COSATU that neither the spirit nor letter of this agreement has been incorporated in the Bill. Clause 3 (under ‘agreements’) of the Nedlac report states that government would 1) "provide a grant to liquidate the current debt and interest burden of the fund"; and 2) stand as guarantor for the transitional period of two years and cover any shortfalls during that period…". It was understood that the further role of government in securing the fund would be considered during the holistic review process. Point 2 under ‘agreements’ states inter alia that an actuarial evaluation will be undertaken in 2002, together with a review of the institutional framework, and that the contribution level of 2% would remain, and would only be increased (in the course of the review process) if necessary and would be subjected to negotiation.
3.6 None of these critical agreements are reflected in the Bill. While it might be argued that these agreements were concluded as part of the UI Contributions Bill, as opposed to the UI Bill, in reality these were negotiated as one package. Further the UI Bill, appears to openly contradict this agreement. In the Memorandum, point 4 on Financial Implications states that a "very short-term financing strategy will have to be discussed…which will address the cashflow problems of the UIF only for the period up to 2002. Otherwise the State will not be called upon to contribute or even guarantee the fund." This is very different from the undertaking in Nedlac to provide a grant to liquidate the current debt and interest burden of the fund; to stand as guarantor for 2 years, and cover any shortfall; and to further discuss the state’s role in financing the fund during the review process. This discrepancy reflects the attitude of the Treasury which has consistently resisted the state taking any financial responsibility for the Fund, preferring rather to focus on cost-cutting strategies such as the cutting of benefits. It is also of serious concern that an examination of the 2001/2 budget reveals no provision for the undertaking made in Nedlac in August 2000 to assist the UIF to stabilise its critical financial situation, unless it is intended to access contingency funds. It is unacceptable that a state-run fund which is playing such a critical role in delivering social security, at minimal cost to the state, is allowed to sink deeper into financial problems, and having to rely on borrowing from the private sector for survival.
3.7 Recommendation: Parliament needs to ensure that the transitional arrangement is captured in the legislation, as well as the undertaking to secure state financial support for the fund. The Bill should require in the Transitional provisions that the review take place after 2 years, and that a report is submitted to Nedlac and Parliament based on the comprehensive actuarial evaluation. This would lay the basis for further detailed consideration of a number of issues which could not be conclusively addressed in the process of negotiations leading up to tabling of the Bill. Further, the undertaking to provide state support for the Fund needs to be clearly spelt out, both in the UI Bill and the UI Contributions Bill. The Committee report should request Parliament to instruct the Treasury to present a proposal specifying the extent of ‘the current debt and interest burden’ of the Fund, how the Treasury proposes to liquidate this, and a financial plan to cover shortfalls during the transitional period. Section 4 of the memorandum needs to be reformulated to reflect this undertaking.
4. Areas of Support
43.1 Progressive Scale of Benefits
4.1.1 In terms of section 12(3)(b)4(2)(b)(iii) the scale of benefits "may vary between a maximum rate of 60% for lower income contributors to some otherand a lower rate.. for higher income contributors as will be determined by thresholds as set out in terms of Sschedule threeone." The underlying principle ofor a progressive scale of benefits is welcome as it would means that a greater portion of low-income earners income will be replaced as compared to the previous situation of a flat rate, regardless of income. There are strong equity and poverty alleviation arguments backing up this redistributive and solidaristic approach to UIF benefitse need for a greater proportion of low income earners’ wages are replaced. The current situation, of a uniform scale of benefit of 45%, favours higher income-earners relative to low-income earners.
However, tThere is a need for certainty on the table as contained in schedule 31. Section 12(2) of the Bill refers to the table as ‘an example’, whereas a previous draft of the Bill referred to it as ‘the scale of benefits’. The Committee should request clarity on this point.
The current table is an example for illustrative purposes but does not set the actual replacement rates. This is problematic, as it gives considerable scope, without any explicit guidelines, for changing the amounts.
While the principle of progressivity is welcome, the actual application of the principle in determining the scale of benefits reflects the current conservatism arising from the financial plight of the fund. In Labour’s submission to Nedlac last year, and in COSATU’s submission on the Task Team Report, we argued that:
We believe that 60% should be the minimum floor, with at least 50% for those earning R2000 a month or less, although ideally the task team proposals of 70% for the lowest income earners should be implemented;.
A flat rate minimum benefit should be set below which low earners could not fall, such as the R200 proposed by the Task Team- the final Bill contains no minimum;
Further as discussed below, tThe Board should set the schedule after consultation with the Minister and Nedlac.
Labour did not however pursue detailed negotiations on the schedule of benefits, on the understanding that this was one of the areas which would be reviewed after the transitional period. As COSATU argued in its submission to the Taylor Committee on social security:
"In order to counteract the effects of long-term unemployment, a more fundamental review of benefits must be undertaken. Benefits should be much higher for the low-income group than the current proposals, for example at 70 per cent of wages. Furthermore, the benefit period should be extended to at least two years. In Germany, by comparison, the benefit is payable from the first day of unemployment for between 78 and 832 days (at about 70% of earnings), depending on contribution history and age of the beneficiary."
"In the event, the NEDLAC constituencies have agreed to work with the existing system at least for the next two years. After two years, an actuarial assessment of the Fund will be undertaken to ascertain the impact of the new benefit regime on the financial situation of the Fund. Thereafter there will be a discussion regarding the benefits schedule and the contribution rates. Still, a review of measures for the long-term unemployed could be undertaken more urgently. In addition, the basic income grant … will play a pivotal role in providing income support for the unemployed once they have exhausted their unemployment benefits."
34.2 Expanding the Scope of the UIF to high income earners
In terms of section 3 the scope of the UIF has been broadened to include high-income earners and seasonal workers. The inclusion of high-income earners will contribute in bringing stability to the fund as employees in these categories are not as a rule affected by unemployment to the same extent as lower paid workers. In the event of being unemployed, they are able to find jobs more easily due to their skills. The added benefit of including high-income earners is that they can cross-subside low income earners. Nevertheless, as shall be shown below, we have concerns with the blanket exclusion of public servants and the manner in which the issue of domestic workers is handled in the Bill.
34.3 Benefit Period
In terms of section 513(3) a contributor’s entitlement to benefits accrues at a rate of seven one days benefit for every 42 six days of employment as a contributor subject to a maximum accrual of 238 days benefit in the four year period immediately preceding the date of application for benefits. In one respect, tThis is welcomed as an improvement on the current benefit period which limits the drawing of benefits toof 26 weeks (or a 6 months limit). This is now increased and the accumulation of credits (1 week for every 6 week’s employed). Consequently, the benefits period is not extended to 34 weeks (8months). This is particularly significant for those workers who lose their jobs, and join the ranks of the long-term unemployed, as it gives them two months extra UIF benefits.
However limitation of benefits to a maximum of 34 weeks in four years compared to the previous limit of 26 weeks in every year is prejudicial to workers who lose their jobs say twice in a 4 year period- who previously would have been able to claim 2x6 months= 12 months UIF benefits, but are now limited to 8 months. This question fell through the cracks in the Nedlac negotiations, and needs to be looked at. If this is not corrected in the current Bill, it is an issue which will definitely need to be addressed in the review process.
34.4 Right to Maternity Benefits
a) Separation of Maternity and Unemployment Benefits
Under the old Act a woman is entitled to six months maternity leave, but women drawing maternity benefits exhaust their UIF benefits. First wWe therefore strongly welcome and support the Bill’s separation of maternity benefits from unemployment benefits as provided by section 5(5). Section 135(5) provides that the "days of benefits that a contributor is entitled to …mayis not be reduced by payment of maternity benefits…" This will secure women’s unemployment benefits if they go on maternity leave. This is consistent with the Task Team’s recommendation that the administration of maternity benefits through the UIF, should in no way mean a woman’s unemployment benefits are eroded as a result of having received maternity benefits. Likewise, drawing from the unemployment benefit should not affect a woman’s maternity benefit.
welcomes the change from the draft Bill, providing thatHowever, the period of maternity leavepregnancy will should benow be a full four (4) months, rather than the 16 weeks as previously proposed by section 16(4).
It is important to emphasise that where trade unions have negotiated 6 months maternity leave, and a top-up of the UIF amount, women retain their rights and employers will be bound to pay for the two months and the balance of the percentage as agreed (ie if 70% of the wage is agreed and UIF pays 40%, the employer is bound to pay the other 30%). This needs to be clarified in the illustrative guide which is proposed elsewhere in this submission. Sixteen weeks is not equivalent to four months.
Under the current dispensation a woman is entitled to six months maternity leave. To ensure that no woman is worse off due to the new Act as a general rule there should be an option of 2 months linked to service in addition to the BCEA’s four months maternity leave. The 2 months option will also accommodate collective agreements that provide for 6 months maternity leave.
b) De-linking Maternity Benefit from period of employment
We stated in the negotiations thatHowever, we believe that the right to maternity benefit should be automatic and entitlement to benefits should not be linked to a period of service. In terms of section 5 of the Bill a contributor is entitled to benefits only when they have accumulated contributions of up to 238 days in the four-year period preceding the date of application for benefits. The motivation for our proposal is to avoid the unintended indirect discrimination of pregnant women. The recent judgement in the matter between Woolworths and Beverly Whitehead has serious implications for pregnant women when applying for employment and should be taken into account.
To peg the benefit to maternity leave to period of employment would constitute indirect discrimination against pregnant women. The effect is that pregnant women will conceal their pregnancy status first in order to be employed. Secondly, the proportionate formula of calculating benefits would mean a woman who was pregnant at the time of employment would receive maternity benefits for a reduced period of time. This issue was not settled in the negotiations. After opposition to this proposal, we dropped it, as well as the question of retaining 6 months benefits, only because of the unknown capacity of the Fund to absorb the costs. This is therefore a question which would need to be relooked at in the review process.
c) Application for Maternity Benefits
The relationship between section 17(1) (application must be made at least eight weeks before confinement) and section 17(2) (application must be made within six months of the confinement) is unclear and needs to be clarified. Further, there is no indication when benefits are payable from. Under the BCEA [section 25(2)] maternity leave can be taken from four weeks before the expected date of birth unless a medical practitioner certified that it is necessary for the leave to be taken earlier. This provision should be referred to as the starting point for eligibility for maternity benefit under the UIF.
34.5 Topping up of Benefits
The Bill endorses the principle of topping up benefits for the following benefits illness; maternity, adoption benefits and dependants benefits. This principle is welcomed and supported as it improves on the current situation where the beneficiary may only receive UIF benefits if he or she receives less than one-third of his/her earnings during for example illness. In terms of section 13(2), 16(3), 19(4) and 22(4) the weekly benefit only becomes payable to the beneficiary when the difference between the usual remuneration of the contributor represents more than fifty percent of the usual remuneration of the contributor.
4.6 Taxation of Benefits and of the Fund
We welcome acceptance of the argument against the taxation of benefits, which was initally proposed in the draft Bill, since this would have amounted to double taxation.
Further we seek clarity on whether the tax exemption of the fund has been retained.
45. Core Areas of Concern
54.1 Exclusion of Domestic Workers
In In terms of section 3(1)(d) of the draft Bill domestic workers wereare excluded from the Act subject to an investigation to look at investigate the methods to include them, which. The investigation may be concluded in eighteen months. In labour’s written response to the draft Bill submitted to Nedlac, the three Federations identified the exclusion of domestic workers as a major concern.
5.1.2 Labour’ response rejected this proposed exclusion:
"This proposal is problematic. We believe that there is consensus that domestic workers should be included in the UIF, and that the only concern remains around how to collect their contributions. This Bill has to reflect this consensus and ensure that technical issues do not delay their inclusion indefinitely. Already, two comprehensive investigations have considered alternative methods of bringing domestic workers into the Bill.
"We believe that the Bill should provide for the inclusion of domestic workers after a fixed period of 12 months, to allow for any further investigation needed and the establishment of the necessary systems. The Bill should therefore include:
A commitment to including domestic workers no more than 12 months after it is passed; and
Provision for an investigation, if necessary, as well as development of the necessary systems for registration and collection of contributions before that date."
5.1.3 Opposition to labour’s proposal in the Nedlac negotiations resulted in the period for the investigation being maintained at 18 months. Despite this, labour’s negotiators thought they had secured agreement to include domestic workers after this period. In their report to COSATU’s Executive of 16 May 2000 they reported that there was agreement that the Bill would contain a commitment to ‘investigate the method and not the principle of inclusion’. However this in principle agreement was not captured in the final formulation in the Bill or the final Nedlac agreement, whose wording allowed in principle for the investigation to result in the further exclusion of domestic (as well as seasonal and foreign contract) workers.
5.1.4 This provision in the Bill has resulted in what many organisations regard to be the unconstitutional exclusion of domestic workers from the UIF. This view was echoed by none other than the UIF Commissioner who stated in his written presentation to parliament last week that "the total exclusion of domestic workers…goes against the spirit of the current constitution". Our advice is that Section 3(2)(a) of the current Bill is indeed unconstitutional. Therefore neither the Bill, nor the Nedlac agreement can be upheld on this point, and requires reformulation.
5.1.5 Recommendation: our recommendation is therefore that the Bill must provide for the clear inclusion of domestic and seasonal workers. If Parliament decides on a transitional period for an investigation, or for the formulation of regulations, it must be made clear that at the end of this period, the Act’s coverage of domestic workers will become effective. The investigation must only be about the method, and not the principle of inclusion.
Further, the Bill should include a definition of domestic workers along the lines of the BCEA. The BCEA defines a domestic worker as follows:
"an employee who performs domestic work in the home of his or her employer and includes –
a person employed by a household as a driver of a motor vehicle; and
a person who takes care of children, the aged, the sick, the frail or the disabled;
but does not include a farm worker."
45.2 Exclusion of Public Servants
5.2.1 Under the ‘Purpose of this Act’, Section 2, the Bill states that it is to "establish a fund to which employers and employees contribute, and from which employees who become unemployed… are entitled to benefits". It also states in Section 71 that "this Act binds the State". It is unacceptable that for the purposes of this act public service workers are not regarded as ‘employees’.
5.2.2 Central to the Department of Labour’s five year programme to transform the apartheid labour market was the intention to have one unified labour market dispensation, which extended rights to all workers, many of whom, including farm, domestic and public service workers, were excluded from coverage. This has been the approach with the other flagship laws of the Department, including the LRA, BCEA, Skills Development, and Employment Equity Acts. This principle has however been increasingly eroded over time, driven by issues of fiscal expediency, with attempts to create a separate dispensation for public service workers. This disturbing trend is reflected in the exclusion of public service workers from the UIF Bill.
5.2.3 It is bad law and bad policy to exclude whole sections of the economy from labour legislation, and to fragment the labour market, when we are attempting to put in place a national basic floor of rights which covers all workers. It further undermines the credibility of government in putting in place one set of policies for private sector employers, and another set of policies for government as employer. If government arrogates to itself the right to contract out of national policies and legislation, it should expect increasing pressure from the private sector to do likewise.
5.2.4 More fundamentally, the exclusion of public service workers from the UIF is unconstitutional. It violates Section 9 of the Constitution- by unfairly discriminating against public service workers it violates their right to equality; and the obligation of the state in Section 27 to progressively realise everyone’s access to social security. If the law is passed with the exclusion of public service and domestic workers, COSATU will have no option but to challenge it in the Constitutional Court. We do not believe however that Parliament will allow the matter to reach that point, but will uphold the letter and the spirit of the Constitution.
5.2.5 We agree with the view expressed by the Department of Labour’s legal adviser to this Committee last week when he rejected the opinion of the State Law Advisor that the exclusion of public sector workers was constitutional. As he pointed out, the argument that public service workers have access to the GEPF, which ‘provides better benefits than the UIF’, is spurious since the GEPF is not an unemployment insurance scheme. Some private sector workers may have better pension benefits than even the GEPF! This has no bearing on whether they should be part of the UIF which is a compulsory national social insurance scheme. The same argument applies to the argument that public sector workers have generous severance packages- a separate issue which also applies in the private sector, and is explicitly catered for in the Bill by allowing workers to draw UIF when they exhaust their retrenchment packages. Or is government arguing that private sector workers and employers should be allowed to contract out of the UIF, if they regard other arrangements as being more beneficial? This would totally undermine the integrity of the Fund, and again thrust the burden of maintaining the fund on the low paid, vulnerable workers.
5.2.6 In addition to arguments of equity, and against discrimination towards public service workers, labour argued in the negotiations that their exclusion seriously undermined the future stability and viability of the fund. The principle of solidarity is entrenched in the Bill, including through the incorporation of high income earners, and adoption of a progressive scale of benefits. The inclusion of public service workers is the key to addressing the financial instability of the fund. Unlike private sector workers, they are on the whole an exceptionally stable strata of the workforce. The effect of incorporating public service workers is confirmed by an actuarial note from the ILO which states that "it can be expected that the inclusion of civil servants into the UIF coverage would abolish the structural deficit of the UIF (even at a contribution of 1% of their salary)"
5.2.7 The 1996 UIF task team report argued that apart from the general increased insecurity of public service workers, those most vulnerable to retrenchments in the public service, namely low paid workers, were also those that qualify for least generous benefits in terms of public service conditions. Further they identify the fact that about 200 000 so-called ‘temporary’ public service workers were included under the UIF prior to 1995. Although their contributions stopped since 1995, they have accumulated credits and are eligible for UIF benefits under the old Act. However the 4 year rule in the new Bill, and the exclusion of the public service from the UIF will effectively deny them access to these benefits. The Task Team recommends that "government employees be contributors to the UIF on the same arrangements as private sector employees".
5.2.8 In the negotiations, to deal with the concern that government may not be able to afford both providing a subsidy to the fund, and making its contribution as employer, labour proposed a compromise which would contain government’s fiscal commitment, ensure the stability of the fund, and incorporate public service workers. Labour proposed that:
"the government provide a subsidy to the UIF equal to its employer contribution (around R500 million); or alternatively, guarantee it will meet any annual deficit incurred by the UIF,
public servants begin to contribute to the UIF immediately, and receive benefits; and
the situation with the employer contribution be reviewed in two years."
5.2.9 Although government rejected this proposal, we believe it is a viable compromise, and are still prepared to support it.
5.2.10 Recommendations: Section 3(1)(c) excluding public service workers from the UIF should be deleted. Further, that a clause be inserted requiring government to provide a subsidy equal to its employer contribution, and qualifying public servants to receive benefits based on the worker contribution. This formula should be reviewed in two years.
Public servants are excluded in terms of section 3(1)(c). In principle, we believe that public servants should be included in the UIF. We realise that given the current fiscal policy, however, if it is included as part of personnel costs, the employer contribution might be raised at the cost of remuneration for public servants. We therefore propose that:
the government provide a subsidy to the UIF equal to its employer contribution (around R500 million); or alternatively, guarantee it will meet any annual deficit incurred by the UIF,
public servants begin to contribute to the UIF immediately, and receive benefits; and
the situation with the employer contribution be reviewed in two years.
45.3 Nature of the Fund
5.3.1 We believeLabour proposed that the fund should be a fully-fledged agency like the South African Revenue Service (SARS). It is, after all, an insurance system, not a social welfare system, and therefore should first and foremost be responsible to contributors. This has a number of four key implications:
the governing body, the Board, should have executive powers, rather than playing an advisory role;
the membership of the Board should be retained as a tripartite board, representing the contributors namely government, employers and workers;. Because the UIF is not a general social insurance scheme it is therefore not clear why the current bill brings the community constituency into the Board.
the staff of the UIF, including claim officers, should be employed by the fund directly and should be accountable to the Commissioner. This will add greatly to the efficiency of the Fund. It will require the transfer of staff and the relevant personnel budget, as was done with SARS.
5.3.2 The current situation where claims officers are responsible for a range of issues in the Department, leads to the UIF not being given the necessary priority, and a lack of accountability. Correction of this situation will lead to a dramaticthe contribution bill should not be a Money Bill. That makes it impossible for the Board to ensure appropriate and efficient functioning, since it removes from its power the key issue of contributions. Rather, the UIF Act should regulate contributions by setting a ceiling, and giving the Board the power to set contributions up to that limit.
improvement in the performance of the fund, a view supported by the Task Team.
5.3.3 This proposal for a hybrid model, which combines overall state responsibility for the fund, with institutional coherence aimed at creating an effective fund, was not rejected by government. It has been parked for further discussion in the review process, but should not be allowed to fall through the cracks.
5.3.4 Recommendation: The fund should be a fully-fledged agency. This should be incorporated as part of the terms of reference of the review process, under the transitional provisions.
a) Adequacy of Funding
5.4.1 The current state of finances of the UIF can be described as a ‘crisis’ – the fund has a large deficit but has growingthe obligations to meet large claims. The Fund is teetering on the verge of collapse if its funding is not radically changed. There are hypothetically five ways to improve the financial state of the fund:
increase levels of contribution;
bring more contributors with relatively stable employment into the scope;
reducing fraud and improving efficiency;
increasing the government subsidy.
5.4.2 Some of the provisions in the Bill, such as incorporating high income earners will slightly improve the position of the fund. Preliminary actuarial evaluations also reveal, as indicated earlier, that inclusion of public service workers will radically improve the position of the Fund.
5.4.3 In relation to other possible variations in contributions, scale and length of benefits, etc Nedlac correctly in our view concluded that these options should not be considered until, the new Act had been in force for some time, and a comprehensive actuarial evaluation had been concluded.
5.4.4 We have stated our view that the state should underwrite the fund as part of its vision to progressively realise the right to social security. From the standpoint of the State, the UIF is one of the cheapest ways to improve social security, since the vast majority of the funds come from the beneficiaries themselves. A key role for the state in underwriting the fund is supported by the international experience, which is documented in the Task Team Report in Chapter 6: of 11 developing and developed countries surveyed which have unemployment insurance schemes, 10 involve an important role for the state in contributing and/or underwriting the funds.
As noted above, we feel that contributions should not be dealt with in a separate bill, since the UIF contribution is an insurance contribution, and in no way a tax. The funds do not go into the general revenue, and they are tied directly to the needs of the contributors. They do not, then, fall under the Constitutional requirements for a money bill.
The Contribution Bill retains the current status wherein the employer contributes 1% and the employee contributes 1%. However, will this level be adequate to improve the current financial state of the fund? Secondly, what will be the impact of de-linking maternity from unemployment benefit on the financial position of the fund?
For this reason, we believe that the costing models should be availed to ascertain the impact of the changes on the financial position of the Fund. Until such time, it will be difficult to determine the viable route of ensuring that the fund is sustainable. As noted above, the bill should rather set a ceiling, then let the Board vary the actual amount after appropriate consultation.
b) Role of the State
Against, this background we are disappointed that the state is not willing to commit financial resources. Historically, government contributed substantial amounts of money which stabilised the fund. In our view, the state should underwrite the fund as part of its vision to progressively realise the right to social security. From the standpoint of the State, the UIF is one of the cheapest ways to improve social security, since the vast majority of the funds come from the beneficiaries themselves.
Unfortunately, in the Bill the role of the state is to play a custodial and trustee role, and not to subsidisunderwrite the fund. For instance, iIt is not clear whether under what circumstances the state will appropriate money from the national fiscus to make up the deficit of the fund in terms of section 52(4). Section 1052(4) provides that the "Minister of Labour may request the Minister of Finance to adjust the national budget" in the event there is insufficient resources to meet payments for benefits.
This clause should be strengthened to ensure that the government meets any deficit incurred by the Fund due to normal and responsible operations. Other recommendations aimed at ensuring implementation of the agreement for the state to underwrite the Fund are dealt with in Section 3 above.
c) Taxation of Benefits and of the Fund
In terms of section 26, benefits will be taxed but whether the fund as a whole is exempted from taxation is not clarified.
First, the tax exemption of the fund should be retained.
Second, benefits should not be taxed since this amounts to double taxation. Employees already pay tax on their income before the deduction of the UIF contribution. Further taxation of benefits raises practical problems of how these will be collected and how will taxable income determined.
56. Other Concerns
6.1 A number of detailed concerns raised have been raised by various organisations working with the unemployed, including the Black Sash, SACC, domestic workers and others. We share a number of their concerns, but will not be able to deal with them in detail in this submission. Below we briefly outline a number of issues, some of which have not been dealt with by other organisations.
5.1 Suspension of a contributors’ right to benefits
In terms of section 28(1) the Commissioner may suspend a contributor for a period of up to twelve years from receiving benefits if he is satisfied, inter alia, that a contributor failed to comply with a written demand issued in terms of section 26(2). Unfortunately there is no section 26(2) in the Bill and it is unclear what written demand is being referred to. The implementation of this clause is potentially drastic for a contributor. Another concern is that it is unclear whether the contributor will also be suspended from contributing. Section 28(3) refers to sections 30 and 31, which do not appear to correspond.
5.2 Right to Unemployment Benefit
Section 8(1)(a) stipulates that a contributor is eligible for unemployment benefits only if the contributor is unemployed due to termination of his or her contract by the employer. However, section 186 of the Labour Relations Act (No. 66 of 1995) defines "dismissal" to include failure to renew a fixed term contract that the employee reasonably expected would be renewed [186(b)] and termination of a contract by an employee where the employer has made continued employment intolerable [186(e)]. It should be made clear that contributors who become unemployed for either of these reasons do not jeopardise their right to benefits.
b) Short-time or Temporary Layoff
The exemption for "short time or temporary lay off" should not be relegated to a vague footnote to section 8(1)(a) and should be clearly defined. The exemption should be limited to periods of two weeks or less. The manner to address this matter would be to amend section 8(1) so that contributors are eligible for benefits "for any period of unemployment lasting more than 14 days of. .."
c) Penalties for refusing work
While we concur that the Director General should be empowered to penalise contributors who refuse available work, training, or vocational counseling, we believe that the provision for such penalties in section 10(2) should exclude situations where the contributor has good reason for rejecting such work, training, or counseling. The language similar to section 8(2)(b) should be incorporated so that penalties could only be applied "if the contributor refuses without good reason to accept available work.."
d) Application for unemployment benefits
In terms of section 9(2) application for unemployment benefit must be made within six months of the termination of contract of employment except that on good cause shown the Commissioner may accept an application made after six months time limit has expired. In terms of the old Act applications for benefits must be submitted within four years of entitlement to that benefit [section 34(10)(a) of the Unemployment Insurance Act, Act 30 of 1966]. We are not convinced why this provision should change and have concern that "good cause’ shown is flexible and give the Commissioner too much discretion. In any event six month is a short period of time and does not take into account the fact that sometime there will be long running disputes regarding dismissals. In most instances it takes up to 12 months for disputes to be settled in the CCMA.
5.3 Illness Benefits
Access to illness benefits in terms of Part C (section 12) should not be strictly limited to cases of illness, but also should include periods of unemployment or limited employment due to incapacity for other medical reasons. Therefore, throughout Part C, the term "medical disability" be substituted for the term "illness". In addition, medical disability should be defined in section 1. Section 11 should be changed to "meaning of period of illness" rather than period of unemployment.
5.4 Dependant’s Benefit
Section 22 makes provision for the payment of dependant’s benefits only to the spouse or child of a deceased contributor. This is at odds with other recent legislation, which acknowledges the equivalent rights of domestic partners other than spouses.
Section 27(2)(c)(i) of the Basic Conditions of Employment Act (No. 75 of 1997) makes provision for leave in the event of the death of an "employee’s spouse or life partner." The Medical Schemes Act (No. 131 of 1998) defines "dependant" to include an individual’s "spouse or partner". Similarly, the Promotion of Equality and Prevention of Unfair Discrimination Act (No.4 of 2000) list responsibility towards one’s spouse [or] partner" as aspects of its definition of "family responsibility." Section 22 should be amended accordingly to include "partner" in addition to spouse.
In terms of section 1 a contributor means "an employee or a natural person who was employed and who can satisfy the Commissioner that the contributor has contributed for purposes of this Act". There are two concerns with this definition. First, there is a confusion of terminology throughout the Bill in referring to the employee who is entitled to claim benefits. The employee is defined as the "contributor" yet at various stages the employee is referred to as the "applicant" (see for example section 9 & 14). In some cases there is even confusion in the same sentence. The correct reference throughout is "contributor".
Secondly, the effect of the clause as drafted places an unfair onus on the claimant to prove they were a contributor. This is the effect of the words "who can satisfy the Commissioner that the contributor has contributed for purposes of this Act." It would cause many claimants – especially those of unscrupulous employers who had not registered them or failed to make or hand over deductions – to lose their entitlements. The previous Act did not contain such an onerous provision and merely defined a contributor as a particular class of employee.
Section 1 defines an employee as "including an employee as defined in the Fourth Schedule to the Income Tax Act, other than a person contemplated in paragraph (c) or (d) of that definition." This definition is presumably included to make it easier for SARS to collect UIF contributions. The definition in the 4th Schedule of the Income Tax Act essentially refers to anyone who is in receipt of remuneration. ‘Remuneration’ is then defined at some length in the Income Tax Act. Firstly this approach makes the determination of a contributor mainly dependent on the definition of an employee for revenue purposes and secondly, far from simplifying matters, complicates them because of the convoluted provisions of that Act which define remuneration.
Thirdly, it might have the effect that an employee who is remunerated purely on the basis of output (e.g. piecework), could be excluded from the scope of the Act whereas the LRA and the BCEA would cover such an employee. Lastly, the definition is unclear when it state that an employee ‘includes’ someone classed as such under the Income Tax Act, without stating the general meaning of the term first. At the very least it should be clear that it applies to anyone covered by the LRA and Income Tax Act.
c) Employer of a contributor
Section 1 defines an ‘employer of a contributor’ as including an employer as defined in the Fourth Schedule to the Income Tax Act. We believe that this should be omitted from the Bill. This is not a definition of an employer, and it is hard to see why it is necessary to include this extension of the definition of the employer of a contributor, if the meaning of an employee is already extended to employees as defined by the 4th Schedule of the Income Tax Act.
5.6 Appeals and Disputes:
In terms of the Bill, dIn terms of section 29 disputes relating to payment or non-payment of benefits may beare referred to the CCMA. We believe the Appeals Committee currently in place should be retained for a number of reasons. Referral of disputes to the CCMA raises legal and practicalsome uncertainties, which labour raised in the Nedlac discussions. On the legal question, it is uncertain whether one administrative body can adjudicate decisions of another administrative body. The CCMA as an ‘administrative body’ would be required to adjudicate the decisions of the Commissioner in terms of section 29. On practical grounds iIt is also uncertain whether disputes would be resolved expeditiously due to the fact that the CCMA currently lacks a fast-track adjudication mechanism. It is uncertain whether disputes related to payment or non-payment of benefits have to follow the entire process of conciliation, mediation and arbitration.
In addition, referring the disputes to the CCMA is not cost-effective. For example if the dispute involves a relatively small amount of money, it will not be cost-effective to refer the dispute to the CCMA, at least from the point of view of the contributor.
Against this background, we argue for the retention of tThe Appeals Committee whose decisions however are reviewable in the Labour Court, in terms of the old Act. This will accelerate the resolution of dispute, as people who have specialised knowledge of the UIF will handle cases.Despite raising these concerns, labour accepted that the CCMA would be used,
subject to adequate resources being made available for the purpose and training of CCMA. Further, it needs to be determined whether the removal of the appeal mechanism is in line with the Administrative Justice Act.
5.7 Drafting Errors
In addition to the drafting errors noted above, there are large number of cross-references that refer to sections of the Bill that are either non-existent or inappropriate. The following cross references, at least, should be checked: reference to section 26(2) in section 28(1)(d); reference to section 35(2) and 39 in section 31(10; reference to section 39(1) in section 31(2)(d); reference to section 41 in section 31(4); reference to subsection 6 in section 40(4)(a); and reference in section 67(1).
In section 12(1), the conjunction between conditions in the a, b, c series invites uncertainty about whether more than one condition must be fulfilled. We presume that an applicant would be entitled to benefits if he/she met conditions a or b, and also c. If so clause c should become part of the main clause: [c.] and application is made…
6.3 The plain language aspect: the language and structure of the Bill needs to be made accessible to potential applicants. It should contain an illustrative guide (cf whistleblowers legislation) which outlines in a clear, simple way who qualifies and under what conditions.
6.4 The exclusion of learnerships is a new issue which was not discussed in the negotiations. We would have to revert on this point.
6.5 Scale of benefits: Section12,3b states that these ‘may vary’- this requires clarification. Further, the amending of the scale of benefits via regulation (see Sections 12,4 and 55) needs to be done via Nedlac or the UI Board.
6.6 Section 14--‘Exhaustion’ of retrenchment benefits- how is this determined? We also question the morality of denying contributors access to their benefits because they have access to other funds, which may have no relation to the UIF.
6.7 Section 16, 3 on illness vs unemployment benefits appears arbitrary
6.8 The right to appeal administrative decision in S17,5 Ss 36,3 and S37
and a number of other sections doesn’t appear to be present. Is this compatible with the Administrative Justice Act?
6.9 The issue of the exclusion of Migrant workers, many of whom have lived in the country for long periods needs to be addressed.
5.8 Data Base
The Task Team recommended that the UIF should move away from the blue card to a computerised database. The blue card system frequently makes workers vulnerable to exploitative or vindictive employers who withhold the blue card and make it difficult for workers to gain access to their unemployment benefits. In working out the details of a new computerised data base system it is critical that the system be designed to be user-friendly for workers and employers, that it lead to an overall improvement in the payment system, and that it lead to reduction in the possibility for fraud.
Section 56 mandates the Commissioner to set a database of contributor and employers, however, it is not clear whether the blue card system is effectively abolished. Lack of clarity on how contributors would be identified will create serious practical problems. This will be compounded by the onerous provision that the contributor must satisfy the Commissioner that he/she has contributed for the purpose of this Act (as provided by the definition of the contributor in terms of section 1). Therefore it is important that the Bill clarifies how contributors would be identified and secondly place the duty on the UIF to keep proper record rather than demanding that contributor must satisfy the Commissioner about their track record as contributors.
Broadly, the submission registered COSATUlabour’s support for important elements of the Bill as part of transforming the apartheid labour market and transforming the current UIF dispensation. In addition, the Bill constitutes an important step in the process of designing a comprehensive social security system. There are various elements of the bill that COSATUlabour welcomes and support. At the same time there we have raised substantive concerns with elements of the Bill. These issues should be addressed so that we can give our unconditional support to the Bill.
7. SUMMARY OF COSATU’S PROPOSED LEGAL AMENDMENTS TO UIF BILL