South Africa issues public consultation on combatting payroll deduction abuses South Africa issues public consultation on combatting payroll deduction abuses

South Africa issues public consultation on combatting payroll deduction abuses
22 Mar 2018

The South African Reserve Bank (SARB) and National Treasury have issued a public consultation on proposals to combat employers’ abuse of payroll deductions.

One of the current issues is the lack of a single legally-accepted definition of what a payroll deduction actually constitutes, according to the SARB.

"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,” it said. “This happens before the salary or earnings are paid into the employee’s account."

Certain deductions are compulsory, such as deductions for income tax. But according to IOL, the government has identified some potential benefits of employees making voluntary payroll deductions, including deductions for paying off credit agreements such as property mortgage bonds. The possible advantage of doing this in relation to a loan repayment is that borrowers are viewed as less of a credit risk, which could lead to a lower interest rate for them.

But the government is also concerned about citizen over-indebtedness and the potential this situation has to compromise promised reform of debit-order collection.

This means that it may make sense to add extra requirements to the existing rules, the SARB said, such as:

  •  Consent by employees to make this kind of payroll deduction;
  •  Allowing no more than 25% of basic salary to be committed to such deductions; and
  •  Prioritising deductions relating to court orders, collective agreements and arbitration awards over discretionary or voluntary deductions.

The Treasury says it hopes the discussion paper will result in legislation that protects employees from predatory or unfair lending or sales practices, allows them to access finance at reasonable rates and promotes savings and the productive use of credit.

 Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

The South African Reserve Bank (SARB) and National Treasury have issued a public consultation on proposals to combat employers’ abuse of payroll deductions.

One of the current issues is the lack of a single legally-accepted definition of what a payroll deduction actually constitutes, according to the SARB.

"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,” it said. “This happens before the salary or earnings are paid into the employee’s account."

Certain deductions are compulsory, such as deductions for income tax. But according to IOL, the government has identified some potential benefits of employees making voluntary payroll deductions, including deductions for paying off credit agreements such as property mortgage bonds. The possible advantage of doing this in relation to a loan repayment is that borrowers are viewed as less of a credit risk, which could lead to a lower interest rate for them.

But the government is also concerned about citizen over-indebtedness and the potential this situation has to compromise promised reform of debit-order collection.

This means that it may make sense to add extra requirements to the existing rules, the SARB said, such as:

  •  Consent by employees to make this kind of payroll deduction;
  •  Allowing no more than 25% of basic salary to be committed to such deductions; and
  •  Prioritising deductions relating to court orders, collective agreements and arbitration awards over discretionary or voluntary deductions.

The Treasury says it hopes the discussion paper will result in legislation that protects employees from predatory or unfair lending or sales practices, allows them to access finance at reasonable rates and promotes savings and the productive use of credit.

 Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

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