A big ask for the UIF

The media statement that came from Business for SA last week to announce that agreement with labour and the government had been reached on the special Covid-19 layoff benefit contained a telling line: “We hope we have established a system that will be able to deliver these benefits with optimal efficiency.” Therein lies the rub.

The Unemployment Insurance Fund (UIF) has a reputation for being inefficient. Individual claimants have complained for years about the amount of time spent queueing and the number of visits needed to secure their benefits. The Employer/Employee Relief Scheme (Ters), on which the Covid-19 scheme is based, can take so long in approving employers and getting the money to flow that the business has gone under by the time it does.

Now the UIF will be faced with its biggest challenge ever: to process more than 1-million applications from employers, perhaps much more, in the space of just a few weeks. It will be difficult for any institution to adapt its IT systems and massively increase capacity at such short notice. For the UIF, which has a limited infrastructure, it is a very tall order.

In 2019, the fund paid out 817,743 claims over 12 months. Of these claims, 24,743 were done by u-filing. To scale up electronic claims to more than a million in two to three weeks is ambitious. The risk that it will not succeed is huge and the consequences of failure are too terrible to contemplate.

An alternative proposal that the SA Revenue Service (Sars) should be the conduit for paying out the benefit (which, for ease of administration, is going to be paid to employers, not employees) came into play late in the day during the Nedlac negotiating process, but the negotiators were reluctant to entertain it. This would have made good sense as it is Sars that collects the UIF money paid over by employers and transfers it to the UIF. The revenue service also has better capacity to adapt its systems and to handle the volume of claims expected.

That said, business has done a very good job in coaxing the government to adapt the old Ters benefit into one that will work in this crisis. Two big achievements stand out: under the Covid-19 Ters benefit a company will not need to demonstrate hardship before it can access the scheme. This cuts out significant bureaucracy and time. All they will need to do is declare that their business has been closed by the lockdown.

Second, employers will be allowed to top up employees’ salaries, which is not permitted under the ordinary Ters scheme. This is important because, on average, an employee receives about 45% of their income from the UIF.

A third innovation by the social partners is that unlike other UIF benefits, the Covid-19 benefit has a floor of R3,500, equal to the minimum wage. The UIF benefit is normally calculated on a sliding scale of between 38% and 60% of earnings, where the lowest paid are at the top of the scale. The maximum payment allowed on this scale is R6,730.

We are also fortunate in this crisis that the UIF has built up such immense reserves. It has R40bn immediately available in money-market and other financial instruments and another R120bn in investments, mostly government bonds.

But it does also raise the question why the UIF is sitting on such enormous reserves when a portion of these could be ploughed into the economy and labour market interventions. The fund has always jealously guarded its surplus, which has had the benefit of warding off the hyenas. But as SA faces its biggest economic shock since World War 2, the time may have come to deploy those resources more effectively than in the bond market.

WE ARE ALSO FORTUNATE THAT THE UIF HAS BUILT UP SUCH IMMENSE RESERVES