A Comprehensive Update on The Covid-19 Temporary Employer/Employee Relief Scheme

C19 TERS, in its original format, was made public by the DEL on the 26^th of March 2020 in Government Gazette No. 43161, which can be found HERE.
 
Subsequent to the initial publication, material changes to C19 TERS were then published by the DEL on the 8^th of April 2020 in Government Gazette No. 43216, which can be found HERE.
 
During the period 26 March 2020 until 20 April 2020, the application process has changed no less than five times – which has resulted in confusion and inaccurate applications being submitted at times by employers. The current state of the C19 TERS application process can be summarised in the words of the Labour Minister Thulas Nxesi during an interview on 19 April 2020:
 
“The system was never meant to face such a huge demand. The system is very small, helping with 10,000 to 20,000 claims. Now [we] are talking [about] millions [of applications]. In terms of the system, we are not going to be able to deliver as we are supposed to.”
 
The full interview can be found HERE.
 
What is the current qualifying criteria to apply for C19 TERS?
 
Should an employer, as a result of the Covid-19 pandemic close its operations, or a part of its operations, for a three months or lesser period, “affected” employees shall qualify for a C19 TERS Benefit. The requirements in order to submit a valid application are summarised below:
 

• The employer must be registered with the Unemployment Insurance Fund (“UIF”);
• The employer must make monthly contributions to the UIF (as required by the Contributions Act);
• The employer must comply with the application procedure for C19 TERS;
• The employer’s closure of its operations (wholly or partially) must be directly linked to the COVID-19 pandemic; and
• The employer is not registered with a bargaining council that has entered into a Memorandum of Agreement (“MOA”) with the UIF.

The following employees are “affected” or “qualifying” employees, for which C19 TERS Benefits can be applied for:
 

• The employee must suffer a loss of income as a result of the temporary closure of the business operations of the employer (this entails the employee has received less than his/her average/normal remuneration);
• The employee was in employment prior to the commencement of the Lockdown, being 27 March 2020; and
• An employee may only receive C19 TERS Benefits provided the total of the Benefits together with any additional payment by the employer in any period is not more than the remuneration that the employee would have ordinarily received for work during that period.

A final requirement is that the employer must notify the UIF when operations resume once more.
 
What has changed in relation to the requirements?
 

• A fundamental amendment made is that the employer is no longer required to close its operations entirely. The requirements now allows for a “partial” closure of operations. This amendment is welcomed by many employers who have been able to operate to a certain degree (limited manufacturing lines were running or a limited number of staff working from home etc.). There is, however, ambiguity as it would seem that certain employers that have “partially” closed operations would meet the requirements for both C19 TERS Benefits as well as the “Reduced Work Time” Benefit. The “Reduced Work Time” is a UIF Benefit and pays out in line with the normal UIF rules (for every four days worked a credit day is accumulated and the maximum credit days payable is 365 for every four years worked), while the C19 TERS benefit is specifically designed for the COVID-19 pandemic. If an employer qualifies for both, the C19 TERS regulations clearly state that only one benefit can be applied for and not both for a specific period. Given the fact that the UIF will focus on C19 TERS claims (due to mounting public pressure), the pay-out ratio (38% - 60%), the Benefit pay-out period (10 days from application date) and the fact that the C19 TERS claim does not utilise ‘credit days’ on the UIF system, it is compelling to rather apply for the C19 TERS Benefits instead of the normal “Reduced Working Time” Benefits.

• The requirement that the employer must experience “financial distress” has been removed. This is yet another positive amendment. This requirement resulted in various employers being uncertain as to whether or not they would qualify for C19 TERS Benefits.

• Employers who are a part of a Bargaining Council: For these employers specific rules will apply, provided the relevant Bargaining Council has signed a MOA with the UIF on behalf of its members. We advise our clients to enquire from their respective Bargaining Council if such a MOA has been signed or will be signed. If the Bargaining Council has signed a MOA with the UIF, the Bargaining Council will communicate the process going forward. If the Bargaining Council has not signed a MOA with the UIF, the normal application process will be applicable for the employer.

What is the current application process to claim C19 TERS Benefits?
 
The UIF has amended the submission documents and the process for submission numerous times. Further changes can be expected, but at the time of writing the following application process is valid:
 

• Send a ‘request for information’ to: covid19ters@labour.gov.za
• An automated response will provide details in relation to application process.
• An online portal has been created, where the application can be submitted. The online application portal can be found HERE.

In the automated response, detailed guidelines are provided indicating how the online application must be completed as well as how to register a ‘user profile’ on U-filing.
 
If the requirements of C19 TERS are satisfied, the following documents will be required to be submitted or completed online:
 

• Letter of Authority, on an official company letterhead granting permission to an individual specified to lodge a claim on behalf of the company (this can now be done online);
• MOA (completion of the agreement between UIF, Bargaining Council and Employer) (this can now be done online);
• Prescribed template that will require critical information from the employer;
• Evidence/payroll as proof of last three months employee(s) salary(ies); and
• Confirmation of bank account details in the form of certified latest bank statement.

Frequently Asked Questions

1. How will the C19 TERS Benefit be calculated? 

Note: The below is our interpretation of current information made public to date. No example or comprehensive explanatory guideline has been issued by the DEL or UIF and accordingly we cannot provide any assurance as to the accuracy of the below interpretation. This is, however, our best endeavour to assist our client base in calculating the possible C19 TERS Benefits.
 
In terms of Clause 9.1 of the MOA, the C19 TERS Benefits will be calculated in terms of the Income Replacement Rate (“IRR”) sliding scale (38% - 60%) as determined in the Unemployment Insurance Act (“UI Act”). The method of calculation is fairly complex with significant detail, but can be summarised as follow (this method can be used for estimates, but not necessarily accurate UIF calculations, given the number of variables involved):
 
The IRR determines the percentage of a contributor’s previous income, to which the contributor is entitled in the form of benefits. The IRR is at its maximum when income equals zero, and it reaches its minimum where income is equal to the “benefit transition income level” (currently R 8 099 per month). The maximum IRR is currently set at 60%. The minimum IRR is currently set at 38%.
 
The contributor’s entitlement is calculated according to the following formula:
 
Daily Benefit = Daily Income x IRR
 
Daily Income:
 

• If a contributor was paid weekly, daily income is the weekly rate of pay divided by 7.
• If the contributor was paid fortnightly, daily income is the fortnightly rate of pay divided by 14.
• If a contributor was paid monthly, daily income is the monthly rate of pay multiplied by 12, then divided by 365.

The employee’s remuneration, which must be taken into account when calculating the C19 TERS Benefits, will be capped at a maximum amount of R17 712 per month (i.e. the maximum Daily Income is R 17 712 * 12/ 365 = R 582. 31 per day).
 
IRR:

IRR = 29.2 + (99779.68 / (3239.6+Yi))
 
Yi represents a contributor’s normal monthly rate of income. (Consistently of units is essential. To calculate IRR from daily or weekly rates of pay, the UI Act will need to be consulted. Such detailed calculations cannot be accommodated in this article.)
 
The formula above can be amended to determine when the 38% minimum will become effective. Our assessment indicates that if an employee’s normal monthly rate of income is above R 8 099 (i.e. R 101.18 per day), the 38% minimum limitation will become effective.

Note – We are aware that certain articles and publication have suggested that the formula should be amended to ensure the minimum limitation will become effective on a normal monthly rate of income above R 17 712 and not the current R 8 099. This seems to be more line with the MOA, but we have not adopted this approach as this is not what the legislation reflects and legislation takes precedence over publications and contracts.
 
The C19 TERS Benefit is calculated as follow:
 
Daily Benefit x (Lockdown period applied for in days – Days that full remuneration was received)
 
For example, if the person earns R 20 000 per month and he gets R 12 000 from the employer and the application is from 1 April – 30 April (i.e. 30 days) the days would be as follows:
 
“Lockdown period applied for in days” = 30 days
“Days that full pay was received” = R 20 000 / 30 = R 666.67 per day
R 12 000 / R 666.67 = 18 days full pay

Therefore this person would receive C19 TERS Benefits for 12 days multiplied by his Daily Benefit rate. Clause 9.2 of the MOA states the minimum C19 TERS Benefit will be R 3 500, but it is not known if this minimum will still be applicable if the employee has received more than R 3 500 from the employer. The pragmatic approach would be that the R 3 500 limit would not apply, as the person has earned more than the minimum wage.
 
There are two limitations applicable when calculating the estimated C19 TERS Benefits:
 

• The minimum C19 TERS Benefit will be R 3 500 per month, should the above calculation result in a C19 TERS Benefit of less than R 3 500 per month. The minimum was previously linked to the sector minimum wage, but this has been replaced with a “blanket” amount of R 3 500 per month.
•  The employee’s remuneration, which must be taken into account when calculating the C19 TERS Benefits, will be capped at a maximum amount of R17 712 per month.

2. What is the ‘monthly rate’ or ‘salary’ to be used when calculating the C19 TERS Benefits?
 

• Clause 9.1 of the MOA states that the C19 TERS Benefit must be calculated in terms of the IRR, per the UI Act. Section 13 of the UI Act states that:

“…for purposes of calculating the benefits payable to a contributor, the daily rate of remuneration of a contributor, subject to the prescribed maximum, must be determined…”
[Bold – own emphasis]
 
“Remuneration” in section 1 of the UI Act, is referred to the definition of “remuneration” in the Unemployment Insurance Contributions Act No. 4 of 2002 (“UIC Act”).
 
“Remuneration” in section 1 of the UIC Act reflects the following:
 
“means ‘remuneration’ as defined in paragraph 1 of the Fourth Schedule Income Tax Act No.58 of 1962,as amended (“the Act”), but does not include any amount paid or payable to an employee –
 
(a) by way of any pension, superannuation allowance or retiring allowance;
(b) which constitutes an amount contemplated in paragraphs
     (a) [living annuity or annuity amount],
     (cA) [restraint of trade],
     (d) [termination or insurance related payout],
     (e) [retirement lump sum] or
     (eA) [pension / provident]
     of the definition of “gross income” in section 1 of the Income Tax Act; or
(c) by way of commission;
[Bold and [] – own emphasis]
 
The Fourth Schedule can be found HERE, as it is too lengthy to discuss in this article in depth. The definition is very inclusive, but the most material extract is as follow:
 
“means any amount of income which is paid or is payable to any person by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument, pension, superannuation allowance, retiring allowance or stipend, whether in cash or otherwise and whether or not in respect of services rendered…”
 
The question now arises whether or not the “remuneration” that the formula refers to is the remuneration received during the Lockdown or whether it is the remuneration of the previous month?
 
This is an important aspect as the C19 TERS Benefits will materially differ, as the remuneration received during the Lockdown would be less than the normal monthly remuneration, which could result in a higher IRR % allocated to the employee. This, in turn, would increase the C19 TERS Benefits awarded to the employee during the Lockdown.
 
It has not been clarified by the UIF whether or not the R 17 712 per month remuneration limitation is the gross remuneration normally received (i.e. normal full salary) or the nett remuneration (gross monthly remuneration less remuneration received during the Lockdown period).
 
Our assessment has concluded the following:
 
The “daily income” is calculated in terms of the UI Act, for example:
 
If a contributor was paid monthly, daily income is the monthly rate of pay multiplied by 12, then divided by 365. Note that Clause 9.3 of the MOA states that this amount is limited to R 17 712 per month per employee (discussed above in more depth).
 
Section 13(2) of the UI Act states that:
 
“If the contributor’s remuneration fluctuates significantly from period to period, the calculation must be based on the average remuneration of that contributor over the previous six months”.
[Bold – own emphasis]
 
The remuneration received last month compared to the remuneration received during the Lockdown period, could be a clear indicator of a material fluctuation “from period to period”. This would result in the employer needing the use the ‘average’ salary of the employee.
 
Our conclusion is that the C19 TERS Benefits will be calculated using the normal monthly (i.e. gross salary) remuneration of the employee and not the decreased remuneration for the period of the Lockdown (i.e. nett salary). The R 17 712 per month remuneration is therefore based on the previous month’s full remuneration and not the “nett” remuneration received during Lockdown.

3. Is there a closing date for submissions to the C19 TERS Benefit?
 
No ‘closing’ date has formally been made public. It has been suggested that the closing date for applications would be the last day of Lockdown, as C19 TERS Benefits are only applicable over the Lockdown period, but we have not been able to substantiate this claim with any supporting documents.
 
A closing date on the last day of Lockdown would be impractical to say the least, as few employers will know what they will be able to pay their employees before the 30^th of April 2020 with enough time remaining to submit a claim to the UIF for C19 TERS Benefits.

4. Must the employer or the employee apply for C19 TERS?
 
The employer must apply on behalf of the employees. This is implemented in order to streamline the process and decrease the amount of applications received by the UIF.

5. How much has the UIF paid out to employers and employees to date?
 
The most recent updated figure available was provided by the UIF on 16 April 2020. As at this date the UIF had paid out R 1.1 billion. The UIF also stated that nearly half of the applications received to date were duplicates.

6. What is the impact if I pay my employees annual leave during this period?
 
C19 TERS’s excel template has a column for “Remuneration received during Shutdown period”. The term “remuneration” is defined in the UIC Act, as amended, which refers in turn to the Fourth Schedule of the Act. “Remuneration”, is defined in the Fourth Schedule to the Act, and includes the value of annual leave paid out to employees.
 
Currently, annual leave which is paid out must be included in the “Remuneration received during Shutdown period” column. Submissions have been made to government and the DEL to allow for annual leave to be paid out and not influence the C19 TERS application. for further amendments, which will hopefully remove annual leave as “remuneration” for purposes of C19 TERS.
 
In the interim, the MOA that must be signed during the online application does, however, seem to provide some leniency in this regard. Clause 11 of the MOA allows the employer, once the C19 TERS Benefits have been received, to recover any amount advanced to the employees and then pay the balance of the C19 TERS Benefits to the employee.
 
This allows the employer to advance funds to the employees in the interim (i.e. a loan agreement) and then recover the funds once the C19 TERS Benefits are received, without any adverse implications.
 
This will, to a certain extent, eliminate hardship and provide cash flow relief for the employees, resultant of the delayed payment of C19 TERS Benefits by the UIF. The value of annual leave could also be advanced to an employee on loan account, with the employer partially recovering the loan advanced to the employee from the C19 TERS Benefits and then converting annual leave to repay the balance of the loan remaining. This way the employee effectively recovers some of his/her annual leave days through the C19 TERS Benefits received with remuneration only being received at a later stage for annual leave paid out.

7. When must the employees be paid, subsequent to the employer receiving the C19 TERS Benefits?
 
Clause 11 of the MOA requires that the employer must pay the C19 TERS Benefits to the employees within two days of receiving the funds via EFT. No Cash withdrawals are allowed to be made. This is done in order to keep the audit trail for future UIF audit or verification. The employer must submit proof of payment to the UIF within 5 days of receipt of the funds.

8. What proof is required if the employer recovers the full C19 TERS Benefits, as the employer previously advanced the Benefits to the employees?
 
Clause 12 of the MOA requires that the employer must submit proof of payment to the UIF once the Benefits are distributed to the employees. Clause 11 of the MOA, however, allows the employer to recover Benefits previously advanced to the employees. The MOA does not provide clarification as to what proof the UIF will require in the instance where Benefits are recovered by the employer.
 
We would advise our clients to submit proof of payment when the Benefits were previously advanced to the employees, accompanied by a spreadsheet which provides a breakdown of:
 

• Funds previously advanced to employee by employer (aligns with proof of payment)
• Benefits provided by C19 TERS (aligned with C19 TERS breakdown of Benefits per employee)
• Benefits recovered by the employer (we advise each employee must sign an agreement as to what funds it previously received is an advance on C19 TERS Benefits and which was remuneration paid by the employer for the month)
• Point 1 less Point 3 will equal the remuneration provided to the employee during Lockdown, which will reconcile to the “Remuneration received during Shutdown Period” in the original excel template submitted with the C19 TERS application.

9. Are there special provisions, should the employer employs less than 10 employees? 

If the employer employs less than 10 employees (note – this does not include the 10^th person), then the C19 TERS Benefits will be dispensed to the individual employees’ bank accounts and to the employer’s bank account. Accordingly, no proof of payment is required to be sent to the UIF by the employer.
 
10. Does the employer require a separate bank account? 

The Employer does not require a separate bank account (this was previously a requirement, but subsequently retracted by the DEL). The UIF will transfer the C19 TERS Benefits via EFT into the designated business bank account of the employer. The employer must then distribute the funds to the employees accordingly.
 
If the employer is part of a Bargaining Council, specific rules could apply and in those instances a separate bank account could be required.
 
11. How does the employer know who to pay and how much of the C19 TERS Benefits? 

The C19 TERS Benefits, once transferred to the employer will be accompanied with an email reflecting a detailed breakdown of the Benefits allocated per employee per period. It is critical that this breakdown of Benefits allocated per employee is adhered to and not deviated from to ensure the accurate distribution of C19 TERS Benefits and avoid any adverse UIF implications.
 
12. How do I know that my application has been received? 

Once the online application has been submitted, the UIF online portal will reflect a notification stating that the application has been successfully submitted.
 
The email address, supplied during the online profile registration process, will in addition also receive a formal email as pictured below:


13. If I had previously submitted a claim via email, should I apply online as well? 

The UIF has not released any formal communication as to whether or not a claim that was submitted via email needs to be re-submitted online.
 
14. Technical tips on completing the excel spreadsheet: 
 

• Only the columns with an asterisk (*) are mandatory. For example, the PAYE column is not mandatory and if this information is not readily available, the column must be left blank – do not insert any sign/number or letter.
•  In the instance when a number starts with a zero (such as a contact number or certain bank branch numbers) be sure to place a single quotation mark (‘) in front of the zero, otherwise the zero will be removed when saving into the .csv format.
•  Ensure that in the first column the UIF Number of the employer is listed and not the South African Revenue Service (“SARS”) EMP201 number starting with a “U” instead of a “7”. The UIF Number is not linked to the SARS EMP201 number.

The employer’s UIF Number is a unique number issued by the UIF, and looks as follows:
1234567/8
 
15 The Employer has always paid UIF to SARS, but does not have a UIF Number? 

The Employer must, as soon as possible, register online with U-filing to obtain a UIF Number. The website for online applications can be found HERE.
 
UI-19 forms must be submitted to the UIF by each registered employer as a declaration of information of commercial employees in its employ.
 
16. How long is the period between the application date and the date on which the C19 TERS Benefits will be transferred to the employer? 

Clause 21 of the MOA states that, following verification of the supporting documents and calculation of the benefits, the UIF will transfer the Benefits into the employer’s bank account within 10 business day for the first period of temporary closure.
 
17. How can I correct an error on a C19 TERS application already submitted? 

The UIF has not designed a process for correcting an error, which is why it is critical that the application submitted is accurate, valid and complete. If an error is made, the only cource of action that can be suggested is to email or phone the UIF, explain the situation and re-submit the application via the online portal. Contact details are listed below:
 
Covid19TersSupport@labour.gov.za
UIF call centre: 0800 030 00
 
18. Can more than one claim be submitted? 

Yes, more than one claim can be submitted provided that these claims request C19 TERS Benefits for different periods (for example, claim one reflects: 27 March 2020 – 16 April 2020, while claim two reflects: 17 April 2020 - 30 April 2020) or different employees.
 
19. If I need to generate an invoice for the C19 Benefits, does the invoice include VAT? 

In this instance the employer will merely act as a payroll administrator or paymaster on behalf of the UIF. The receipt of funds from the UIF will therefore merely be a “recovery of money”, which was or will be paid out to the employees.
 
The Value-Added Tax Act No. 89 of 1991, as amended, defines “goods” and “services” and specifically excludes the supply of money in both definitions. Accordingly, the recovery of money is neither a supply of “goods” or “services” and therefore Value-Added Tax (“VAT”) cannot be levied.
 
The invoice is not a ‘vatable’ transaction. This must be differentiated from a vatable transaction, which could be VAT exempt or zero-rated.
 
Note: Our specialist tax team is keeping abreast of all developments and will communicate these developments once accurate, relevant and valid information becomes available.
 
What’s Next?
 
Look out for our next COVID-19 Update as our team of experts provide an update on the latest developments of government and private sector relief initiatives.
 
Author: Mark Hewitt from Moore Cape Town’s specialist Tax and Advisory Department