• Proposals to end abuse of payroll deductions:

THE SOUTH African Reserve Bank (Sarb) and National Treasury this week invited the public to comment on proposals to combat the abuse of payroll deductions, but also to allow deductions for home loans, for example.

The proposals, which are contained in a discussion paper, cover employees in the public and private sectors.

The Sarb says there is currently no single legally accepted definition of a “payroll deduction”.

“Generally, a payroll deduction is understood to refer to the withholding or withdrawal of an amount by an employer from an employee’s salary or earnings for payment to a third party, or to discharge an obligation to the employer. This happens before the salary or earnings are paid into the employee’s account,” the Sarb says.

Certain deductions are compulsory, such as deductions for income tax. However, the government has identified potential benefits of voluntary payroll deductions, including deductions for paying off credit agreements, such as the mortgage bond on your property.

The main potential benefit of entering into a payroll-deduction agreement for a loan repayment is that the lender views you as less of a credit risk and you may, therefore, receive a lower interest rate.

When credit is used for the accumulation of wealth, such as buying a home, rather than for retail consumption, payroll deductions can play a role in improving the quality of lives of employees and fostering financial inclusion, the Sarb says.

However, the government is also concerned about over-indebtedness and the potential to compromise debit-order collection reform.

Proposals to mitigate the concerns and risks identified above are to restrict access to payrolls to a greater or lesser extent. Additional requirements may be required, the Sarb says, such as:

• Consent by the employee to such payroll deductions;

• No more than 25% of basic salary is committed to such deductions; and

• Deductions in terms of court orders, collective agreements and arbitration awards should be prioritised over discretionary or voluntary deductions.

Treasury says it hopes the discussion paper will result in legislation that will:

• Protect employees from predatory or unfair lending or sales practices;

• Afford employees the benefit of accessing finance at reasonable rates; and

• Promote savings and the productive use of credit over the unproductive use of credit.

Comments on the discussion paper should be emailed to npsdirectives@resbank.co.za. The deadline to comment is April 30.