The eThekwini Municipality says it has engaged with labour unions and is taking steps to regularise payroll deductions after concern was raised that some municipal staff were facing financial ruin as a result of “predatory loans”.
“The Mercury” reported two weeks go that a municipal labour union had flagged loan companies it said had trapped workers in a vicious cycle of debt where they were borrowing money every payday just to survive.
These companies put in a stop order via the employer, which means they take their loan repayments before the employees get their wages. In one instance, a worker earning about R20000 is left with just R1800 after the deductions. These stop orders were allowed as a result of the collective bargaining agreement.
The eThekwini Municipality’s spokesperson, Gugu Sisilana, said the municipality had taken steps to regularise the payroll deductions, in light of current legislation such as the National Credit Act and the Basic Conditions of Employment Act.
“The steps relate especially to exploitative micro-lending. The municipality has engaged with labour (South African Municipal Workers’ Union and the Independent Municipal and Allied Trade Union) at a bargaining level as the micro-lenders are contracted directly to labour. Agreement has been reached to regularise deductions and to stop the exploitative practice. The implementation of these agreements is currently under way,” Sisilana said.
The National Treasury informed “The Mercury” that the government has repeatedly stressed its opposition to debt collection via direct deductions from payroll as such practices can leave employees with little or no take-home pay. Other concerns include the fact that the process could give preference to certain credit providers.
“This creates an uneven playing field and negatively impacts the progress made in reforming the debit order systems. It lowers the credit risk for preferred credit providers, which encourages reckless lending, as they fail to thoroughly establish the creditworthiness of their customers,” it said.
The National Treasury said that in December 2013, Cabinet expressed its concern about the high levels of household over-indebtedness.
“They directed the ministers of finance and trade and industry to take measures to assist over-indebted households and prevent them from becoming over-indebted in the future. One of the identified measures was the regulation of credit-linked deductions allowed on employer payroll systems.”
It said the current regulations for government payroll deductions limit discretionary deductions to 40% of a state employee’s salary.
“However, these regulations currently apply only to government payrolls, leaving local government and private sector employees without similar protections.”
The National Treasury, however, said that a draft directive on payments from salaries had been issued by the South African Reserve Bank (SARB) in July for public consultation. While the directive is still at the draft stage, it would place the onus on employers, in this case municipalities, to ensure that workers are not being exploited.
The draft directive addresses the issue of payroll deductions and outlines the conditions under which this practice is acceptable. It highlights several issues that should be closely monitored.
On the topic of indebtedness, the draft states that there is a risk that unscrupulous financial service providers may offer products without conducting the necessary suitability tests. This could lead to the over-indebtedness.
To monitor these practices, the draft imposes several conditions. It states that employers must obtain the employee’s prior written consent for payroll deductions. Furthermore, employers must demonstrate that their appointed third parties can show that employees will materially benefit from the payroll deduction, whether through convenience, financial gain, or both.
The Independent Municipal and Allied Trade Union leader in Durban, Queen Mbatha said the union had studied the draft payroll deductions directive and believed it will assist the situation in eThekwini.
“We are saddened and worried by what is experienced by the eThekwini employees in the name of the collective agreements. As much as we own and respect the collective agreements which allow the third party deductions, we implore eThekwini to also play their part and demonstrate and satisfy itself that employees will materially benefit from the payroll deductions.”
Sisilana said the finalisation of the draft legislation will strengthen the City’s current implementation strategy.
THE MERCURY