After President Cyril Ramaphosa’s announcement of the 21 day lock down, panic filled most small, medium business owners. Although the President announced certain measures that will be implemented in order to alleviate the devastating financial impact of the COVID-19 shut down on Small medium enterprises it was uncertain who will qualify for assistance, what will be covered and how long the process will take.
Here is an overview of what we know to date about the different relief funds.
PAYMENT OF EMPLOYEES DURING SHUT DOWN (SALARIES TERS FUND)
One of the biggest expenses for any business is payment of employee salaries. Government anticipated that most businesses will not be able to pay salaries when forced to shut down for 21 days and created the COVID-19 Temporary employer/employee relief scheme (TERS FUND). Here is what you need to know about claiming from the TERS fund:
- Who will qualify to claim from the fund?
- Any employer who is forced to shut down operations for 3 months or lesser and who is under financial distress due to the forced shut down and who:
- Is registered and in compliance with the UIF
- Comply with the application procedure set out in the regulations,
- Can prove a direct link between the company’s closure due to the COVID-19 shut down, and inability to pay salaries.
- What will the fund pay?
- This fund will only pay salaries of employees capped to a maximum amount of R17 712.00 per month per employee.
- The employee will be paid in terms of the income replacement sliding scale (38% - 60%) as provided in the Unemployment Insurance Act.
- Should the employee’s salary fall below the minimum wage amount when calculated in terms of the sliding scale contained in the UI Act, then the employee shall be entitled to a minimum payment of R3 500.00
- What is the process to register for relief in terms of the TERS fund?
- The employer must report that its business is closed by sending an e-mail to Covid19ters@labour.gov.za.
- An automatic reply will be sent to the employer with a number of excel spreadsheet forms and a memorandum of agreement.
- The employer shall be required to furnish the Unemployment Insurance Fund with the following completed documentation:
- Letter of authority from the company;
- Signed Memorandum of Agreement from the employer with the UIF;
- Information of payroll including number of employees on payroll, remuneration package of each employee etc.,
- Proof that the employer opened a separate bank account (separate from the business account) where the UIF will pay the benefits to,
- Details of all employees employed by the company and their bank account
- What does the memorandum of agreement between the employer and the UIF entail?
- The UIF requires the employer to enter into a memorandum of agreement with the UIF in which the employer guarantee, inter alia:
- that the information provided to the UIF is correct and truthful;
- that the employer will use the benefits received from the UIF to pay the employees salaries in accordance with the calculated benefit per employee;
- that excess funds will be refunded to the UIF;
- that the employer understands that the UIF will only cover 3 months salaries and
- that the employer has a plan to improve the situation within a certain time and become self-sustaining.
It should further be noted that employers who paid salaries during this time will not be eligible to recover the amounts paid, or any portion thereof from the UIF.
PAYMENT OF BUSINESS DEBT (OPERATIONAL COSTS “DEBT RELIEF FUND”)
In addition to concerns regarding payment of staff salaries, many small medium businesses have the added pressure of debt, which they will likely not be able to pay during this time. Government has implemented a separate fund known as the “The Debt Relief Fund” for Small medium enterprises to assist with existing business debts through the provision of easy term loans.
Here is what we currently know about the fund, how to claim and what will be covered:
- Who will qualify to claim from this fund?
- Small medium enterprises that are wholly owned by South African citizens, and whose employees are at least 70% South African citizens, priority will be given to businesses owned by woman, youth and people with disabilities.
- The business must be able to prove a link between COVID-19 shut down and its inability to pay its debts.
- What will the fund pay?
- According to official communication from the Minister’s office it seems this fund is aimed at providing relief on existing debts and repayments to assist SMMEs during the period of the COVID-19 state of disaster.This fund will offer working capital, stock, bridging finance, order finance and equipment finance.
- The amount required will be based on the funding needs of the business and will depend on the specific industry and working capital required.
- This fund will, for example, cover the rental of the business premises, pay a hire purchase instalment on a business vehicle etc.
- What is the process to register for relief in terms of the SMME relief fund?
- The business must complete the online application form found at smmesa.gov.za.
- A dedicated person managing the scheme will then revert with further information on what will be covered by the fund and if any additional information is required.
This is uncharted territory not only for Government, but for Attorneys and Accountants alike. We are committed to staying update on developments and invite all small, medium business owners to contact our offices for further information, alternatively follow our Facebook page @ Langenhoven Pistorius Modihapula Attorneys for updates as more information become available.
OTHER RELIEF THROUGH THE TAX SYSTEMS
- Using the Tax system Government will provide a tax subsidy of R500 per month for the next 4 months for those private sector employees who earn less than R6 500.00 per month under the Employment Tax incentive.
- The South African Revenue Service will also work towards accelerating the payment of employment tax incentive reimbursements from twice a year to monthly to get cash into the hands of compliant employers as soon as possible.
- Tax compliant businesses with a turnover of less than R50 million will be allowed to delay 20% of their pay-as-you-earn liabilities over the next four months and a portion of their provisional corporate income tax payments without penalties or interest over the next six months. This intervention is expected to assist over 75 000 small and medium-term enterprises.
- Government is exploring the temporary reduction of employer and employee contributions to the Unemployment Insurance Fund and employer contributions to the Skill Development Fund.
As stated earlier, there is still a lot of uncertainty as to how the funds and loans will work, when it will pay out, what exactly will be paid out and if it will really make a substantial difference during these uncertain times.
Please stay tuned to our facebook page for further updates and information.