Here’s what SA businesses are doing to survive – from moving pay day to cutting hours
- The coronavirus pandemic and lockdown are putting enormous pressure on businesses.
- Companies are considering their options, which include temporary layoffs and cutting costs, including expense claims.
- Government is encouraging businesses to apply for a new UIF benefit.
- For more stories, go to Business Insider SA.
The SA Reserve Bank currently estimates that the coronavirus crisis will claim 1,600 businesses, but if the lockdown carries on for longer (or even if doesn’t), that number may be an underestimation.
As it is, some well-known companies may not survive, with Edcon’s CEO warning that Edgars and Jet may not be able to open their doors again after the lockdown, putting almost 40,000 jobs under threat.
“In the first week of lockdown, our members were talking about how to fund staff salaries,” says Gerhard Papenfus, CEO of the National Employers Association of South Africa (NEASA), which represents more than 10,000 businesses. “Now – amid rumours of a lockdown extension – the focus has shifted to the survival of their businesses.”
Most at risk are businesses in tourism, air and shipping freight, vehicle manufacturing and the vehicle trade, construction and property, he says.
Still, there have been only a few reports of formal retrenchment processes according to Neasa and the large unions which Business Insider has spoken to.
According to the legal retrenchment process, businesses must explore alternatives, along with workers, before they can proceed. During a lockdown, this may not be possible, says Papenfus. He expects a surge in retrenchments in coming weeks, however.
For now, here’s what companies are doing to survive the current crisis:
Use new tax benefits
Government has introduced emergency tax benefits:
- Companies can now claim back up to R1,500 a month per employee who earns less than R6,500 (for those younger than 30), and R500 for those 30 and older. These amounts will be paid back every month by SARS as part of the Employment Tax Incentive (ETI) programme.
- Companies with an annual turnover of less than R50 million can delay the payment of their provisional tax. Instead of paying 50% of their expected tax bill six months into the tax year, and then settling the full amount at the end of the tax year, companies are now allowed to pay only 15% after six months, and another 50% by the end of the tax year. Then, by 30 September 2021 (or six months after the end of their financial year), the company needs to pay the outstanding balance.
- Businesses with an annual turnover of less that R50 million can also keep back 20% of the pay-as-you-earn (PAYE) payments they were supposed to hand over to the SA Revenue Service (SARS) for the next four months. But they will have to pay back this amount in equal instalments, with the first payment expected on 7 September 2020.
Small business can also apply to two main government schemes for help. The Debt Relief Finance Scheme will assist distressed small companies with loans. The Business Growth/Resilience Facility is aimed at small companies which can take advantage of supply opportunities resulting from the coronavirus pandemic or a shortage of goods in the local market. For both of these, companies first need to register at https://smmesa.gov.za/.
Cut employee benefits
This is emerging as the first port of call for many businesses, according to Papenfus. Companies are cancelling overtime and travel reimbursements, as well as petrol cards, company credit cards and entertainment expenditure allowances.
“We are going to emerge from this crisis with a totally different, much-reduced expense claims regime,” he predicts.
Other cost-cutting measures include reviewing contracts with consultants.
Cut executive pay
Some companies including Woolworths, whose CEO, board and senior executives are taking a 30% pay cut for the next three months, as well as Mr Price and the tech company EOH, have announced steep cuts to executive pay. The SA Reserve Bank has also called on banks to put on hold bonuses for senior executives in order to preserve capital, to help their clients.
Cut staff pay – and apply for UIF money
This is the route the property group Pam Golding is following after it cut salaries, and then registered for the Unemployment Insurance Fund's (UIF) new coronavirus benefit.
As part of the special Temporary Employee/Employer Relief Scheme (TERS), money will be paid out to workers in distressed companies.
The amounts paid will be a percentage of an employee’s salary, according to a legislated sliding scale from 38% (for the highest earners) to 60% (for the lowest earners). The maximum benefit is R6 730 a month.
It will work on the same principle as maternity benefits. If a company can still afford to pay employees a part of their salaries, the TERS money will “top up” these payments – but employees can’t earn more than 100% of their current salaries.
Companies struggling to pay salaries due to the coronavirus crisis need to report this per email to Covid19ters@labour.gov.za.
At a briefing earlier this week, labour minister Thulas Nxesi made it clear that government will take a hard line if it found that companies who were not paying their workers, did not claim from the UIF under the new scheme.
“Workers should not be punished because of irresponsible employers,” Nxesi said, urging companies to take this option and soften the lockdown blow to staff.
Force employees to take leave – and scrap the December shutdown
Employers are within their rights to place staff on forced leave during the lockdown period. Some also plan to scrap the traditional shutdown period over December and into January to make up for the lost capacity during lockdown.
But Nxesi has appealed to companies not to put workers on leave “unnecessarily”, and to be sensitive to the current environment.
Cut staff hours
Some companies have implementation “short-time”, for example a 4-day work week – which means a salary cut of around 20%.
Affected employees can claim UIF money if an employer cut their hours (this is called the “reduced working time” claim).
Unpaid leave or temporary layoffs
The UIF TERS scheme also covers employees who have been put on unpaid leave during this time, or have been laid off temporarily. Companies need to apply with UIF to get the money for their workers.
Stop dividend payments
Standard Bank may be the first listed company to halt the payment of dividends due to the coronavirus crisis– it was due to pay almost R9 billion to shareholders this month. This followed a request from the Reserve Bank that banks should hold on to the dividends to bolster their capital position.
Refuse to pay rent during lockdown
Following the example of international retailers like Primark, in South Africa, The Foschini Group and KFC owner Yum Brands are refusing to pay rent during the lockdown. The Foschini Group said it was following legal advice on the issue.
Move pay day
To boost cash flow and preserve capital, at least one company known to Business Insider, has moved its pay date from 25 April to 30 April. It will for the time being only pay staff on the last day of the month.
Pension payment holiday
Pam Golding management said they are talking to pension and provident funds about a payment holiday during the coronavirus crisis, which will allow it to save money on these contributions.
(Compiled by Helena Wasserman)
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