South African employers under fire

Following the withdrawal of a longstanding exemption, South African employers now face stricter enforcement and potential dual penalties, exposing non-compliant employers to action by both Labour Inspectors and the FSCA.

On 13 January 2025, Employment and Labour Minister Nomakhosazana Meth withdrew the 2003 determination that exempted employers from the application of section 34A of the Basic Conditions of Employment Act (BCEA).

This section governs the contributions to benefit funds, which include pension, provident, retirement, medical aid or similar funds.

Webber Wentzel Partner Nicci van Vuuren and Knowledge Lawyer Amy King explained that this exemption previously shielded employers from labour law enforcement regarding deadlines for payment of benefit fund contributions.

This change, Van Vuuren and King said, strengthens the enforcement framework and creates additional compliance obligations for employers.

Importantly, they noted that contributions to pension, provident, or retirement funds are also regulated under the Pension Funds Act.

“In this regard, Labour Inspectors can now enforce compliance with section 34A alongside the existing regulatory powers of the Financial Sector Conduct Authority (FSCA),” they explained.

“The timing and nature of this withdrawal are significant.” Section 50(9) of the BCEA provides that the minister may withdraw a determination following an application by an affected party.

The “affected party” in question may be an employer organisation, a registered trade union, or a covered employee, Van Vuuren and King explained.

“This procedure suggests that the change was prompted by stakeholder concerns about widespread employer non-compliance,” they said.

It is likely linked to issues identified following the implementation of the two-pot retirement system in September 2024.

“The two-pot system exposed reams of employers who had been deducting pension contributions from employees’ salaries but failing to remit those funds to retirement funds, with outstanding contributions totalling billions of rands,” Van Vuuren and King said.

“The withdrawal of the exemption is likely a legislative response to strengthen enforcement mechanisms against such non-compliance.”

Stricter rules for employers

Section 34A of the BCEA sets out strict payment deadlines that employers must meet, Van Vuuren and King explained. These deadlines apply with respect to any amount deducted.

“An employer that deducts any amount from an employee’s remuneration for payment to a benefit fund must pay the amount to the fund within seven days of the deduction being made,“ they said.

Any contribution that an employer is required to make to a benefit fund on behalf of an employee must be paid to the fund within seven days of the end of the period in respect of which the payment is made.

This excludes contributions that are not deducted from the employee’s remuneration. These obligations do not affect any requirement under the rules of a benefit fund to make payment within a shorter period.

These timeframes mirror the obligations under section 13A(3) of the Pension Funds Act, Van Vuuren and King noted.

This section requires relevant contributions to be transmitted to the fund not later than seven days after the end of the month for which the contribution is payable.

The practical difference is that section 34A of the BCEA imposes different trigger dates depending on whether the contribution is an employee deduction or an employer contribution.

Different trigger dates also apply depending on when the employer runs payroll, which may not be at the end of the month.

For example, if an employer’s payroll run is on the 25th of each month, contributions to the fund must be paid within seven days of the 25th.

Following the change, Van Vuuren and King explained that employers are now subject to dual enforcement mechanisms as follows –

• Under the Pension Funds Act, non-payment is a criminal offence punishable by a fine of up to R10 million, imprisonment for up to 10 years, or both. Directors and senior management can be held personally liable under section 13A(8).
• Under the BCEA, labour inspectors can issue compliance orders and impose administrative penalties for contraventions of section 34A.

“The dual enforcement regime means that employers who fail to pay contributions timeously may face concurrent action from both Labour Inspectors and the FSCA, with potentially overlapping penalties,” Van Vuuren and King warned.

They stressed that employers should immediately review their payroll processes to ensure compliance with the seven-day payment requirements for both employee deductions and employer contributions.

In particular, South African employers should pay attention to the different trigger dates under section 34A of the BCEA.