Deducting amounts from salaries and failing to pay –
Employers brought to book by the law

By Clement Marumoagae

There are employers in South Africa who deduct retirement fund contributions from their employees’ salaries but fail to pay them over to the relevant retirement funds as mandated by s 13A and reg 33 of the Pension Fund Act 24 of 1956 (the Act). Some employers also fail to register their employees with relevant retirement funds despite being participating employers to such funds (Moloantoa v The Private Security Sector Provident Fund and Others (PFA) (unreported case no PFA/00001982/2013/TKM)). Some employers fail to register themselves with funds operating within their respective industries, which they are compelled by law to register, unless they are lawfully exempted from registering with such funds (Mthimkhulu MB v NCB Holdings and Another (PFA) (unreported case no PFA/GA/8180/2006/SM)). Government, the Financial Services Board (FSB) and the office of the Pension Funds Adjudicator (adjudicator) have run out of patience with employers who make deductions but fail to pay the money to the intended funds (M Moonsamy ‘Section 13A of the Pension Funds Act: Payment of Contributions and Certain Benefits to Pension Funds’ (2010) www.dentasa.org.za/Sectio%2013a%20Pension%20Fund%20Act.pdf, accessed 6-10-
2014). Such impatience is well illustrated by the 2013 amendments to the Act through the Financial Services Laws General Amendment Act 45 of 2013 
(FSGAA). This article discusses the problem of non-payment by employers of contributions that are deducted from their employees’ salaries, to the relevant retirement funds and how the law currently seeks to remedy this problem. 

Section 13A of the Act

Section 13A (1) of the Act mandates employers to pay money deducted in terms of the rules of the fund from the employee’s remuneration over to the retirement fund. In terms of s 13A (3) of the Act, any contribution to a retirement fund in terms of its rules shall be transmitted directly into the retirement fund’s account with a bank registered as such under the Banks Act 94 of 1990, not later than seven days after the end of the month for which such a contribution is payable (FSB Circular PF 108 (www.fsb.co.za/Departments/retirementFund/Circulars/PF%20Circular%20108.pdf, accessed 6-10-2014). Employers should make all the required contributions payment timeously. Section 13A (7) of the Act provides that interest shall be payable on the amount of any contribution not transmitted or received by the fund or insurer as prescribed in s 13A (3) of the Act. The employer will therefore be required to pay interest on any non-payments, late payments or short payments. The rate of interest is prescribed from time to time by regulation. The method of the calculation of the late payment interest is set out in FSB Circular PF 110 (www.fsb.co.za/Departments/retirementFund/Circulars/PF%20Circular%20110.pdf, accessed 6-10-2014) Section 13A (6) of the Act places the duty of compliance and monitoring of payment of contributions on the principal officer or an authorised person by the board of trustees. 
The person responsible for checking receipt of electronic transfers into the fund’s account or responsible for receiving contributions must report to the principal officer of the retirement fund or authorised person when the employer fails to pay contributions as required by the rules of the fund (reg 33 (2)). This will enable the principal officer or an authorised person to report the failure in writing to comply to the board of trustees within seven days of receiving such report (reg 33 (3)). In terms of reg 33 (5), if the employer fails to transmit contributions to the fund within 90 days, the monitoring person should inform the Registrar of Pension Funds. The Registrar may inform the Commissioner for South African Revenue Service of such non-compliance and the Commissioner shall take whatever action he or she deems necessary against the participating employer and/or the board of the fund (reg 33 (6)).  

It is concerning that even with the above discussed statutory safeguards certain employers, more particularly within the private security industry, still neglect to pay contributions to the funds to which they are mandated to.  This is despite the fact that all the employers within the private security sector are obliged to participate in the Private Security Sector Provident Fund, unless an employer is exempted from the fund in terms of the rules of that fund (see r 3.1 – 3.3 of the Private Security Sector Provident Fund Rules). It has been reported in the media that the Private Security Sector Provident Fund is in shambles and it needs to recover millions from employers who allegedly pocketed provident funds after deducting them from the employees’ salaries (Thuli Zungu ‘Security guards robbed of millions in pensions’ Sowetan 15-4-2013 (www.sowetanlive.co.za/helpline/2013/04/15/security-guards-robbed-of-millions-in-pensions, accessed 6-10-2014)). The effect of non-payment by employers of pension fund contributions to the fund is that employee members will not receive their retirement benefits when they withdraw from the fund, despite contributions having had been deducted from their salaries. 

Lastly, s 13A (2) of the Act requires that employers provide the fund with information that will assist the fund to determine whether the employer has paid contributions to the fund. In terms of reg 33 (1), minimum information, which must be furnished by the employer to the fund shall consist of the initial contribution statement and subsequent contribution statement. The initial contribution statement includes among others –
• the name of the fund; 
• identification of fund period in respect of which the contribution is payable; 
name and address of the employer; and
• employee’s full names, identity (ID) number and date of membership. 

The FSGAA

The purpose of the FSGAA is, among others, to amend and update the Act in order to ensure a sound and well regulated financial services industry. This amendment makes the employer’s failure to pay contributions to a retirement fund a criminal offence. Section 17 of the 
FSGAA amended s 13A of the Act by introducing three subsections thereto, namely, subs 8, 9 and 10 respectively. Section 13A (8) of the Act now provides for personal liability for every director who is regularly involved with the financial affairs of a company, every member who regularly controls or involved with the financial management of a close corporation and persons entrusted with managing the overall financial affairs of the employer.  Section 13A (9)(a) of the Act obliges retirement funds to request participating employers to notify the fund in writing of the identity of the person who will be personally liable when contributions are not made by the employer to the fund. Should the employer fail to provide the fund with the name of such person, all the directors of a company, members of a close corporation or persons comprising the management body of the employer shall be held personally liable (new s 13A (9)(b) of the Act). The board of trustees is also mandated to report any non-compliance by the employers to the Register of Pension Funds (new s 13A (10) of the Act).

The Registrar of Pension Funds is empowered to refer non-compliance with 
s 13A to the Enforcement Committee of the FSB. The Enforcement Committee was introduced to enable the FSB to act against individuals and entities that contravene the laws that the FSB regulates, including the Act. The Enforcement Committee is an administrative body established to adjudicate on all alleged contraventions of legislation, regulations, and codes of conduct administered by the FSB, and it has the power to impose unlimited penalties, compensation orders and cost orders that are enforceable as if they were judgments of the High Court of South Africa (www.fsb.co.za/enforcementCommittee/Pages/aboutUs.aspx, accessed 6-10-2014). However, it has been argued that ‘although that committee was empowered to impose civil penalties on those who violated provisions of various financial services laws, for unknown reasons the registrar has not referred non-payment cases to the enforcement committee’ (Bowman Gilfillan Africa Group ‘Employer’s failure to pay pension fund contributions to become a criminal offence’ FANEWS 15-1-2013 (www.fanews.co.za/article/legal-affairs/10/general/1120/employer-s-failure-to-pay-pension-fund-contributions-to-become-a-criminal-offence/13019, accessed 6-10-2014)). However, it has been reported that the FSB has not yet had a watertight case of a defaulting employer, which could be taken to its Enforcement Committee, but nonetheless it does not want to use the Enforcement Committee as a collecting agent when retirement funds should be using other ways to collect the contributions due to them (Lara du Preez ‘Employers reneging on pension payments’ IOL 17-3-2013  (www.iol.co.za/business/personal-finance/retirement/employers-reneging-on-pension-payments-1.1487422#.VDKK_vmSx7g, accessed 6-10-2014)). 

Section 49 of the FSGAA further amended s 37 of the Act by providing that a person who contravenes or fails to comply with, among others, s 13A of the Act is guilty of an offence and liable on conviction of a fine not exceeding R 10 million or to imprisonment for a period not exceeding ten years, or both such a fine and such imprisonment. It remains to be seen whether this legislative initiative will induce employers, more particularly within the private security sector to start being compliant with s 13A of the Act. I am of the view that if the boards of trustees begin assessing their records adequately in order to identify employers who are failing to act in accordance with the law and start utilising both the civil route provided by the Enforcement Committee, as well as the criminal route provided for by these amendments, employers will have no option but to comply. I also welcome the initiative for personal liability, and believe that this initiative will most definitely ensure that employers start making contributions to retirement funds, which they are supposed to contribute to. 

The Pension Funds Adjudicator
The adjudicator has also assisted employees in cases where the fund refused to pay their withdrawal benefits. More particularly when employers failed to register such employees with the relevant pension fund but deducted contribution amounts from their salaries. The adjudicator has ordered the fund to compute the value of the withdrawal benefit that the employee member would have been entitled to had he been a member of the fund and had the employer timeously made the pension contributions due in terms of the rule of the fund, and directed the employer to pay the employee the amount computed by the fund (the Mthimkulu case). The adjudicator has also ordered some employers to register themselves and their employees with the funds, which they are mandated to register with (Selebogo v The Private Security Sector Provident Fund (PFA) (unreported case no PFA/NW/000005120/2013/PGM).

Conclusion

It is unjustifiable that there are employers who continue to deduct amounts from the salaries of their employees but deliberately fail to pay such amounts to the relevant retirement funds. Most employees, more particularly those who are earning less such than those working within the security sector, more particularly the private security sector are the most vulnerable to such practices. The legislature has provided the much-needed intervention as discussed in this article. Thus the boards of trustees need to ensure non-compliant employers are effectively brought to book. The trustees need to comply with s 7C of the Act, which requires them to take all reasonable steps to ensure that the interests of members in terms of the rules of the fund and the provisions of the Act are protected at all times. It is pleasing that the Office of the Pension Funds Adjudicator has been instrumental in trying to force employers who took contributions from their employees and failed to contribute to the relevant fund to pay such money with interest to either the employees or the retirement funds. 

It is important that practitioners who are approached by clients, who experience difficulties with their withdrawal benefits pay-out or pay-out of pension benefits as dependants of members of retirement funds, should first attempt to liaise with the fund directly through letters and possibly by telephone before approaching the adjudicator. Section 30A of the Act provides that a complainant may lodge a complaint with the fund for consideration by the board of trustees, which should be considered and replied to in writing within 30 days of receipt thereof. Further that if the complainant is not satisfied with the reply or there was no reply at all, then a complaint may be lodged with the office of the Pension Funds Adjudicator.

Clement Marumoagae LLB LLM (Wits) LLM (NWU) Diploma in Insolvency (UP) is an attorney at Marumoagae Attorneys in Itsoseng.