UIF Overview of the Contribution Limit
The old legislation excluded employees who earned remuneration above a limit determined from time to time by the UIF Commissioner, from making contributions.
This exclusion has now been removed, thereby extending the coverage of employees for unemployment insurance.
Under the old legislation, employees who received remuneration exceeding R8.099 per month (or R.97,188 per annum), were not required to contribute at all.
Section 6 (2) of the UIF Contributions Act provides that (payment /contributions) does not apply to so much of the remuneration paid or payable by an employer to an employee during any month as exceeds an amount determined from time to time by the Minister of Finance by notice in the Gazette.
This means that all employees must now contribute to UIF, but only up to the limit – all remuneration above this level is exempt.
The limit has always been published in the Gazette as an annual amount. But the Act refers to the amount paid in any month that exceeds the limit.
How is this to be applied?
For example, a person earning a variable amount each month could exceed the limit in one month, but not the next. The total over the two months might not exceed the limit for two months. Must contributions be paid for the one month on the limit, and in the next on the actual remuneration, or must one compare the earnings to date with the pro-rata limit to date? In practice, most employers will probably treat each month in isolation, and apply the limit in each month.
Calculation of Contributions
If the employee is not excluded as a contributor, then both the employer and the employee must contribute monthly at a rate of 1% of remuneration up to the current limit.
In the past, some employers paid the employee’s contribution on his behalf (ie. The employee: contributed the full 2%).
The main UIF Act states that the employer must deduct the employee’s contribution from the employee’s remuneration, but goes on to say that the employer remains liable for that contribution to the UIF (presumably to provide for the case where the employer fails in his duty to deduct the employee’s contribution from his remuneration). This change was made for two reasons.
Firstly, the payment of the employee’s contribution by the employer would be a payment of an employee’s debt and constitutes a taxable fringe benefit. This would result in a change to the remuneration on which the contribution was calculated from, leading to another calculation of the contribution, and so on.
Secondly, if the contribution is deducted from the employee, then the deduction will definitely be shown on the employee’s pay slip, giving him proof that a contribution was in fact deducted (even if the employer did not pay the contribution to UIF).
To whom must contributions be paid
Contributions must be paid by employers to either SARS or the UIF Commissioner. All employers that are registered with SARS for either PA YE or Skills Development Levy purposes, must pay their contributions to SARS by the 7th of each month.
Employers that are not registered with SARS must pay their contribution to the UIF Commissioner as before. In both cases, the contribution must be paid before the 7th of each month for the contributions deducted in the previous month.
As a result of the changes to the Income Tax Act which brought directors of private companies and members of closed corporations into the PAYE net from 1st March 2002, very few employers will be paying the UIF Commissioner.
A new EMP201 form has been designed and issued by SARS. The form now provides for the total UIF remuneration, the total UIF contribution and the number of employees who contributed in the previous month, in addition to the PAYE and Skills Development levy fields that were on the old form.
The UIF remuneration for an employee that exceeds the limit, must be stated up to the limit, and must be accumulated as such for the EMP201.
Declaration of employee details
The main UIF Act empowers and instructs the UIF Commissioner to collect from even employer certain details of all of it’s employees covered by the main UIF Act, and further instructs that a database be created and maintained from this employee information.
This database will be used to control and administer the issue of benefits to unemployed contributors, and also to allow statistics to be accumulated which will assist the fund to assess it’s risk exposure, thus helping to ensure it’s long-term economic viability.
The main UIF Act requires an initial submission of all employees, followed by a monthly submission of only ‘changed’ employees. The concept of ‘changed’ is not defined, but must surely include any changes to the remuneration or contribution amount from month to month for any one employee. The notice to employers from UIF repeated this requirement from the Act.
However, a special Declaration document was issued on the 8th March 2002, and defines the details of how to submit the return, and the fields required for each employee. In this Declaration, it is specified that, starting from April 2002, a monthly submission of all employees must be submitted, electronically, by completing forms.