South African Council of Churches

Submission to the Portfolio Committee on Labour

The SACC strongly supports the Unemployment Insurance Bill and, in particular, the extension of benefits to domestic and seasonal workers, the delinking of unemployment and maternity benefits, and the introduction of a progressive scale of benefits. However, we raise specific concerns about the delayed inclusion of domestic and seasonal workers; the exclusion of public sector employees; the formulae for the calculation of benefits; the procedure for recovery of benefits paid in error; the criteria for eligibility for unemployment, illness and dependant's benefits; and the powers and composition of the Unemployment Insurance Board. We propose specific substantive amendments to sections 3, 13, 16, 19-23, 33, 35, 48, 49 and schedule 2.

1.0 Introduction

1.1 The South African Council of Churches (SACC) is the facilitating body for a fellowship of 24 Christian churches, together with one observer-member and associated para-church organisations. Founded in 1968, the SACC includes among its members Protestant, Catholic, and African Independent and Pentecostal churches. Together, these denominations represent the majority of Christians in South Africa. SACC members are committed to expressing jointly, through proclamation and programmes, the united witness of the church in South Africa, especially in matters of national debate.

1.2 We welcome the Unemployment Insurance Bill (hereafter, "the Bill") as a valuable step toward greater social and economic justice for all South Africans. We concur with the Minister of Labour's observation that unemployment insurance is a essential component of the social safety net in any humane and caring society.

1.3 We are especially pleased that the Bill is intended to give effect to the Unemployment Insurance Task Team's recommendations concerning the extension of Unemployment Insurance Fund (UIF) benefits to all workers with minimal exclusions, the delinking of maternity and unemployment benefits (so that women do not need to draw down their unemployment benefits while they are on maternity leave), and the introduction of a progressive scale of benefits.

1.4 The SACC commented on the draft bill. We note with appreciation that a number of the concerns we raised have been addressed in the tabled version of the Bill. We also applaud other changes in the Bill, including the exemption of unemployment benefits from income tax.

1.5 Although we endorse the principles embodied in the Bill and many of its provisions, we continue to have reservations about several aspects of the legislation. In some cases, objections we raised previously have not been adequately answered. In other cases, our concerns involve provisions that are new to the tabled Bill. In particular, we wish to draw the Portfolio Committee's attention to the following issues:

Scope of application of the Act

Calculation of benefits

Recovery of benefits paid in error

Unemployment benefits

Illness benefits

Dependants' benefits

Powers and composition of the UIF Board

2.0 Scope of application of the Act
2.1 The SACC strongly endorses the extension of UIF benefits to domestic and seasonal workers. These two categories of workers have consistently been subject to substandard wages, arbitrary dismissal and other forms of exploitation. Insofar as the vast majority of domestic workers are women, their categorical exclusion also constitutes blatant gender discrimination. The litmus test for any unemployment insurance scheme must surely be the extent to which it protects these most vulnerable workers. Over the past decade, several expert panels have studied ways of extending UIF coverage to such employees. Action is now overdue.

2.2 We are therefore extremely disappointed that domestic and seasonal workers continue to be explicitly excluded from the ambit of the Bill in section 3(1)(e). Although section 3(2) envisions the potential incorporation of domestic and seasonal workers following further investigation of appropriate mechanisms and although the body to be created for this purpose is now required to complete its report within 18 months, we firmly believe that this approach not only sends the wrong message, but is also a recipe for further delays in the eventual coverage of domestic and seasonal workers.

2.3 In our submission on the draft bill (
31 March 2000), we argued that a clearer and more desirable strategy would be to provide for deferred inclusion of domestic workers in the schedule of transitional arrangements, rather than entrenching an exclusion--even a temporary one--in the main text of the legislation. (The draft bill did not exclude seasonal workers.) Moreover, in light of the possible constitutional objections to the exclusion of domestic workers and the existing research on extension of UIF benefits, we recommended as brief a deferral as possible, preferably not more than one year.

2.4 A year has passed since we made that proposal; another year in which there has been no tangible progress toward the extension of UIF coverage to domestic workers. We appreciate that these changes raise a multitude of issues that require careful review and creative solutions. We do not wish to see a hasty, ill-conceived scheme which produces no meaningful benefits for domestic and seasonal workers. At the same time, we want to ensure that perpetual investigation does not become a substitute for action.

2.5 Consequently, we now propose that UIF benefits be extended to domestic and seasonal workers immediately upon enactment of the Bill. Domestic and seasonal workers should be permitted to opt into the fund by submitting a prescribed application and by paying contributors' dues directly to the fund. The state should undertake to finance any claims on the fund in excess of receipts. This would not preclude further consideration of more sustainable solutions; to the contrary, we would fully support the creation of a panel (including stakeholders) to make recommendations for long-term arrangements. However, we do not feel that domestic and seasonal workers should wait once again while this body conducts its study. The burden of delay would be taken off of vulnerable workers and would fall on government instead. We believe that this will serve as an added incentive to achieving a prompt resolution.

2.6 In terms of section 3(1)(c), public sector employees at the national and provincial levels are also excluded from unemployment insurance coverage. This seems an arbitrary exclusion. While many government employees may enjoy comparatively high salaries, the same might be said of many private sector employees who are not excluded from the scheme. Public sector employees who lose their jobs are no less in need of a safety net than private sector workers. Moreover, bringing in relatively better paid public employees enhances the fund's capacity to achieve cross-subsidisation.

2.7 In light of these concerns, the SACC would propose the deletion of sections 3(1)(c), 3(1)(e), and 3(2).

3.0 Calculation of benefits
3.1 In our previous submission, we called attention to a number of inconsistencies in the formulae presented for the calculation of benefits to which a contributor is entitled. Several of these problems have since been addressed, but a number of existing or new difficulties remain.

3.2 In order to determine the benefits to which one is entitled, one needs to be able to calculate:

Daily rate of remuneration (income)

The income replacement rate (IRR) associated with that level of income

Number of days for which one is eligible to receive benefits

With these three figures, one can easily work out one's daily replacement income (usual daily income times IRR), weekly benefit (daily replacement income times 7), and number of weeks one is eligible to draw benefits (eligible days divided by 7).

3.3 The method of calculating one's daily rate of remuneration is discussed in section 13(1) and Schedule 2 (lines 52-54). Unfortunately, these two passages say different things. Section 13(1)(a) says that if income is paid on a monthly basis, the daily rate of remuneration should be calculated by dividing the monthly income by 30.33. Schedule 2 says the daily rate should be calculated by multiplying the monthly rate by 12 and dividing by 365 (which equates to dividing the monthly figure by 30.42). Similarly, section 13(1)(b) says a weekly rate of pay should be divided by 7 to get a daily rate, while schedule 2 proposes multiplying by 52 before dividing by 7.

3.4 Calculating the IRR is even more confusing. This is covered solely in schedule 2 and, specifically, in formula 2 in line 44. Regrettably, the values y1 and y2 used in this formula do not appear to be clearly defined anywhere in the schedule. While schedule 3 offers a helpful guide to IRRs at selected income levels, this is not an acceptable alternative to a clear formula. Schedule 2 should explain in plain language exactly how to calculate each of the three variables necessary to determine a contributor's entitlement to benefits.

3.5 The number of days of eligibility seems to be fairly clearly defined in section 13(3): one day benefit for every six days worked up to a maximum of 238 days (less any days drawn during the accrual period). However, this simple expression is confused by an "explanatory" footnote to section 13(5). The footnote offers a detailed procedure for calculating days of eligibility. It says that the total number of days worked during the preceding four years must be divided "by 52 multiplied by 7". Although this statement is ambiguous, either interpretation [(days / 52) x 7 or days / (52 x 7)] is wrong.

3.6 A further concern with respect to the number of days of eligibility is that a contributor is meant to be able to accumulate days for a period of up to four years. This would be 243 days [4 years = 1461 days / 6 = 243.5], yet the ceiling on accrual is 238 days, five days short of this amount. This seems an unnecessary complication of the formula.

4.0 Recovery of benefits paid in error
4.1 While we accept the need for the State to recover benefits paid in error, rectification of such an error should be pursued in a manner that creates a minimum of hardship for the recipient of the funds. Currently, section 35 permits the Commissioner to demand repayment within 30 days of amounts believed to be disbursed in error.

4.2 There are a number of problems with this approach. First, the Commissioner is not required to produce any evidence that the individual in question was ineligible to receive the funds or that she or he did, in fact, receive the funds. Proof of the latter is especially important to prevent the State from attempting to recover from an ostensible recipient funds that were actually pocketed by an official in the disbursement chain. Second, there is no deadline by which the State must recognise its error and notify the presumed recipient. Such a claim could be made five or ten years after the incident when the individual involved is less able to document a rebuttal to the State's claim. Finally, the 30 day repayment period may prove a burden in many cases and may also inhibit the recipient's ability to appeal.

4.3 Section 33(2), which allows the State to set off benefits against a debt arising from an earlier incident of erroneous payment of benefits, creates further problems. In practice, individuals are often confronted with prior erroneous payments only when they file new applications for benefits. Thus, the demand for payment comes at a time when the applicant is most vulnerable. The State's powers to reclaim benefits paid in error should be exercised independently of its obligation to provide benefits to contributors. No exception to the prohibition on the assignment, attachment or setting off of benefits should be made for the State.

4.4 We therefore recommend the following amendments:

Delete section 33(2).

Insert two new sections after section 35(1) as follows:

(1A) If the Commissioner determines that a person has been paid benefits in error or in excess of the person's entitlement, the Commissioner must, within three years of the date of the erroneous payment, make a written demand for repayment to that person.

(1B) A written demand contemplated in subsection (1A) must include--

a statement of the amount paid in error;
b. an explanation of why the recipient was ineligible to receive the funds; and
c. evidence that the person to whom the demand is addressed actually received the funds. [This could be a copy of a record of deposit or of the person's signature in a register to indicate collection of funds.]

In section 35(2), replace the words "30 days" with "60 days".

5.0 Unemployment benefits
5.1 Section 16(1)(a) stipulates that a contributor is eligible for unemployment benefits only if the contributor is unemployed due to termination of her or his contract by the employer, termination of a fixed-term contract, or suspension of a contributor's employment or contract in terms of provisions of the Insolvency Act, 1936. However, section 186 of the Labour Relations Act (No. 66 of 1995) defines "dismissal" to include 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 this reason do not jeopardise their rights to benefits. We suggest therefore that section 16(1)(a) be amended to read:

a. the reason for the unemployment is--

(i) the termination of the contributor's contract of employment by the employer of that contributor,
(ii) the dismissal of the contributor, as defined by section 186 of the Labour Relations Act, 1995 (Act No. 66 of 1995),
(iii) the termination of the contributor's employment [or if the employment is terminated] due to the ending of the fixed term contract, or
(iv) the suspension of [if] that contributor or the contributor's contract of employment [has been suspended] in terms of the provisions of the Insolvency Act, 1936 (Act No. 24 of 1936);

5.4 Section 16(3) empowers a claims officer to stop a contributor's unemployment benefits if the contributor falls ill and the claims officer feels that such illness will prejudice the contributor's chance of securing employment. The principle underlying this provision seems to be that only those who are potentially employable are eligible for UIF benefits. If one becomes unemployable (or of limited employability) due to illness, then one must look to other programmes, such as disability grants, to provide a safety net.

5.5 Although this is an acceptable principle, there is a danger that this clause will open up a gap between UIF benefits and disability benefits since a claims officer's assessment of the impact of a contributor's illness will not necessarily coincide with the assessment of a district surgeon or other health official asked to render an opinion for the purposes of processing an application for a disability grant. A stronger link should be drawn between the termination of UIF benefits and the commencement of disability benefits in order to prevent people from falling through this gap.

6.0 Illness benefits
6.1 Part C of Chapter 2 provides for illness benefits. However, access to benefits in terms of this section should not be strictly limited to cases of illness, but should include periods of unemployment or restricted employment due to incapacity for other medical reasons.

6.2 We propose that throughout this Part, the term "medical disability" be substituted for the term "illness". In addition, "medical disability" should be defined in section 1 as follows:

"medical disability" means any temporary physical or mental incapacity that restricts or obstructs a person's ability to work as a result of illness, surgery or other medical procedure;

7.0 Dependant's benefits
7.1 Section 30(4) stipulates, in part: "Any monies received by the dependant from whatever source as a result of the contributor's death must be regarded as being payments received in terms of section 14(a)(iv) ..." [Emphasis added.]

7.2 This wording suggests that any inheritance or insurance payment unrelated to the deceased contributor's employment would diminish the benefits the deceased person's dependants could claim from UIF. We wonder if this correctly reflects Parliament's intent. While it seems fair that any potential claim on UIF resources by a deceased contributor's dependants should be offset by any death benefit or insurance settlement related to the contributor's employment, it is less obvious why unrelated income accruing to the contributor's dependants as a result of his or her death should curtail a dependant's capacity to claim UIF benefits.

8.0 Powers and composition of the Unemployment Insurance Board
8.1 Section 48(1)(a) mandates the Unemployment Insurance Board (UIB) to advise the Minister on unemployment insurance policy and policies arising out of the application of this Act. The draft bill conferred two additional advisory roles on the UIB: recommending policies for minimising unemployment and creating schemes to alleviate the effects of unemployment. While we recognise the pitfalls of imposing too many responsibilities on the UIB, we nevertheless believe that the Board might be well placed to share useful insights and recommendations with the Minister on these two matters. Consequently, we would support the reinstatement of these two additional powers.

8.2 Section 49(2) defines the composition of the UIB: four members nominated by NEDLAC to represent the interests of labour and business, plus four members appointed by the Minister to represent the interests of the state. This is a significant change from the draft bill, which stipulated that the UIB should include three members from each of these three constituencies, as well as three members nominated by NEDLAC to represent the interests of community and development organisations. Community and development organisations have unique experience and knowledge to bring to the UIB's deliberations. We strongly urge a reversion to the original formula so that these representatives will be included.

9.0 Conclusion
9.1 The SACC applauds the time and effort which the Minister, the Department, and the Portfolio Committee have invested in revitalising the Unemployment Insurance Fund as a crucial component of a comprehensive social safety net. We thank the Chair of the Portfolio Committee for the invitation to share our views and concerns with Parliament. We urge the Portfolio Committee to work to ensure that as many South Africans as possible are brought under the protective umbrella of unemployment insurance in a sustainable manner.

16 March 2001