Sage Pastel Payroll • UIF Overview of Benefits

Sage Pastel Payroll • UIF Overview of Benefits

UIF Overview of Benefits

Pastel UIF Overview of Benefits

The five types of unemployment benefits have been retained in the main UIF Act, namely:
• unemployment;
• illness;
• maternity;
• adoption;
• dependant;
Benefit rates and benefit value
Benefits for all of the above types are no longer paid out a flat rate of 45% of the contributor’s earnings, but are based on a sliding scale where the maximum benefit is 60% (for the low contributors), and the minimum is 38% (for the high contributors).
The high contributors will then effectively be subsidising the low contributors.
The sliding scale used to determine the value of the benefit, is calculated according to a ‘rectangular hyperbola’ formula, which no one can be expected to understand.
To assist you, the formula has been reduced to the following steps, which explain how to use the formula in layman’s terms.
Firstly, the Average Remuneration (AR) amount over the past six months must be calculated. If the contributor’s remuneration (as stored on the UIF database), fluctuates significantly (ie. by more than 1c between each month), then the average remuneration for the previous six months must be calculated. Even though these amounts are stored on the UIF database, presumably the employer is in a position to calculate this average amount fairly accurately.
Then the Income Replacement Rate (IRR) must be calculated by making use of one of the following formulas:
IRR = 29.2 + (23026.08/( 747.6 +AR)) (Weekly)
IRR = 29.2 + (99779.68 / (3239.6 + AR)) (Monthly)
Then the Benefit Entitlement (BE) amount for the week or the month must be calculated as follows” BE=ARIRR/100
The monthly (or weekly) benefit entitlement must then be converted to a Daily Benefit Entitlement (DBE) by using one of the following formulas:
DBE = BE * 52 / 365 (Weekly)
12/365 (Monthly)
Note that this formula is based on the old limit amount of R8,099 per month).
Benefit days
The next step is to determine the number of benefit days that have accrued to the contributor. This will probably be difficult for the employer to calculate, but again if an estimate is determined, then the number of days calculated by UIF can be checked for reasonableness.
The number of benefit days that a contributor is entitled to, is defined as 1 day’s benefit for every 6 calendar days of completed employment, subject to a maximum of 238 days (or 34 weeks) in the 4 years preceding the date of application for the benefit, less any benefit days (excluding maternity days) that have already been claimed during this period.
The maternity benefit period is limited to a maximum of 17.32 weeks (or four months).
The main UIF Act is contradictory in that it gives two different methods of calculating the ‘/ day’s benefit for days work’ requirement.
The first formula states that the calendar days worked must be divided by 6, while the second formula states that the calendar days worked must be divided by 52 and multiplied by 7. In both cases, any fractions must be dropped off. Applying both these formulas to 140 calendar days worked will give a result of 23 benefit days for the first formula, and 18 days for the second formula. This a substantial difference, which becomes worse as the number of calendar days increases. Hopefully, this will be clarified in the near future, but common sense tells us that the first formula must be used.
Previously, when a female contributor claimed maternity benefits, she reduced the benefit days available to her for other benefits by the number of days granted for maternity leave. The new legislation ‘ring-fences’ maternity benefits from the other unemployment benefit types. Employees who go on maternity leave can do so without reducing their benefit days. This was obviously discriminatory against women, and its removal is welcomed.
Unemployment benefits
An unemployed contributor is entitled to unemployment benefits for any period of unemployment exceeding 14 days if certain standard conditions are met, and if the reason for unemployment is one of the following:
• The termination of the contributor’s contract of employment by the employer.
• Dismissal of the contributor in terms of section 186 of the Labour Relations Act (which
defines ‘dismissal’ in general terms, irrespective of whether the dismissal was fair or unfair, or whether it was for operational reasons or not).
• Insolvency (of the employer).
In principle, the other types of benefits are similar to unemployment, and are based on the same standard rules to determine the value of the benefit rate per day, and the number of benefit days.
Maternity benefits and “top-up” remuneration
Probably one of the most difficult areas of the new legislation to apply in practice, is that of top-up payments to employees who are on maternity leave.
In the main UIF Act there are three sections, each of which contains two clauses dealing with the concept of top-up payments.
The first clause states that the benefit determined by UIF according to the above rectangular hyperbola formula, will be reduced by the amount of the top-up remuneration.
The second clause states that the total of the benefit determined by UIF according to the rectangular hyperbola formula plus the top-up payment must not exceed the remuneration amount normally paid to the contributor.
In order to apply the second clause, the employer needs to know what the value of the UIF benefit will be so that the top-up payment can be calculated to compensate the contribute] for the balance of his normal remuneration. The UIF in turn needs to know the value of the remuneration that the employee will be paid during the benefit period, before finalizing the value of the benefit.
The UIF has confirmed that the second clause is the one that will be applied in practice, and this is now commonly referred to as the “100% rule”, as the amounts are normally determined as a percentage of the normal remuneration, and the total of the two percentages must then not exceed 100%.
For example, if an employee’s average monthly remuneration is R-6,000, by applying the first step of the formula, the IRR percentage is calculated as 40%.
IRR = 29.2 + (99779.68 / (3239.6 + AR))
IRR = 29.2 + (99779.68 / (3239.6 + 6000.00)) = 40%
This means that the employer can top-up the contributor’s remuneration by not more than 60% of normal remuneration. If the employer pays more than 60%, then the UIF will reduce the IRR percentage to keep the total percentage at a maximum of 100%.
If on the other hand, the contributor’s remuneration was above the monthly limit, then the IRR rate will always be 38%, and the employer should be able to top-up by 62% (of the monthly limit).
Remembering, of course, that normal remuneration for UIF is based on remuneration before the deduction of tax deductible amounts, and also that the UIF benefit amount is paid free of tax.
Finally, all top-up remuneration paid to a contributor whilst receiving benefits will generate UIF contributions. The employee’s top-up remuneration will be included on the monthly submission of employee data, resulting in the situation where, in the event of the contributor claiming another benefit soon after the end of the maternity leave, the reduced amount of remuneration stored on the database will be used to calculate the average remuneration for the last six months, resulting in a much lower than normal average value. On the positive side, benefit days will be accumulated during the maternity leave period.

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