Proactive practical steps you can take to manage Emolument Attachment Orders (EAO’s)

 

2015 certainly has been the year in which court judgements have forced HR and payroll departments to change the way in which they handle the administration of their employees’ Emolument Attachment Orders (EAO’s) — otherwise informally known as garnishee orders.

First came the Stellenbosch University Legal Aid Clinic[i] judgement, with Wendy Appelbaum being the initial driving force behind the case[ii], followed by the more recent Tuffy Manufacturing judgement[iii] that was pronounced in October.

Additionally, with EAO’s now squarely back in the spotlight of South African labour issues[iv], it’s clear that companies would be wise to do everything they can in order to take proactive ownership of all EAO’s that are being processed through their payrolls.

For the HR and payroll administrator, this could be a daunting task if you haven’t been closely following these legal developments. But, not to worry, because this article outlines the most relevant issues that your company’s payroll and HR department can implement in order to gain some assurance that all remains above board.

So, just what is it that you can do for your employees?

Take a genuine interest — help your employees

[tweetthis remove_twitter_handles=”true” remove_hidden_hashtags=”true” remove_hidden_urls=”true”]Take a genuine interest — help your employees[/tweetthis]

Your employee is an asset to your organisation. If they aren’t, then start by considering them to be valuable assets. By helping your employee sort out his/her garnishee order problems, you may end up saving yourself a lot of trouble too.

An employee in financial distress certainly will impact their productivity, their performance and possibly their level of job-commitment too.

Employees who’ve been working long hours, only to see their ‘take home pay’ being forcefully deducted (quite often, unfairly so) when their salary pays out at month end, is an unhealthy situation in your workforce. Often, such employees are tempted to engage in acts of fraud and crime merely to remain financially afloat.

Zak King, editor of the free monthly magazine Debtfree, recommends a popular way of offering easy help to one’s employees — to host a wellness day for them. Invite a local (reliable and reputable) debt counsellor who can meet with and chat to your employees, whilst also offering them valuable help and direction with their EAO’s at the same time.

Ian Hurst, CEO of Paymaster Payroll Services, strongly recommends working with the employee, as well as with the claimant. Strive to get both parties’ mutual understanding on all issues of legality and accuracy for each EAO. Hurst maintains, “It’s always advantageous for an organisation (and it’s payroll department in particular), to cultivate a strong sense of support for the overall wellbeing of its employees, the company’s greatest assets!”

Find out where was the EAO issued — what court, in which town?

Generally speaking, if a local court authority issued the garnishee order, then it should be fine. However, when the EAO has been issued from a court in a geographically distant area of jurisdiction, then the likelihood exists that it was indeed unfairly issued. King’s views are an echo of the general consensus that in cases such as these (ed. and their have been many) consumers are unable to access geographically distant courts. Consequently, they are thus deprived of their constitutional right to defend themselves. This practice, though now beginning to slowly stop owing to recent legal developments, is known as “forum shopping” — the practice of seeking out “friendly courts by creditors which might cause abuse of the process”, says Zak King of Debtfree magazine.

Who auothorised the EAO — a magistrate or merely a clerk of the court?

The unsavoury court practice of merely “rubber stamping”[i] the issuing of EAO’s has seemingly taken off like wildfire. The practice is reported to be so unhealthy that, as King says, “it is felt that [in many cases] the [garnishee] orders might be fraudulent” because they were never checked by a Magistrate, so nobody truly knows for sure if they are legitimate or not. Therefore, do yourself a favour and check this critical aspect of all EAO’s that are being processed through your company’s payroll.

All Western Cape employers may suspend new EAO’s issued from outside the province, until March 2016

[tweetthis remove_twitter_handles=”true” remove_hidden_hashtags=”true” remove_hidden_urls=”true”]All Western Cape employers may suspend new EAO’s issued from outside the province, until March 2016[/tweetthis]

After the recent ruling in the Tuffy Manufacturing case, the Western Cape High Court ruled that “employers do not have to institute any new EAOs they receive from another area [of jurisdiction], until the matter is resolved by the Constitutional Court – which will be heard in March [2016]”. This is good news for employers!

It is however suggested, that instead of sitting idle until then, companies consider implementing these proactive steps to facilitate a sorting process to differentiate between the legitimate EAO’s versus the illegitimate (unfair) EOA’s that stand a good chance of later being set aside in a magistrates court, once a Constitutional Court decision has been finalised, early next year (2016).

Establish an in-house production line to validate all EAO’s

If your company doesn’t have this yet, consider the implementation of an EAO in-house production line (validation process) for your HR and Payroll department. It’s important that companies start checking to see whether EAO’s are authentic or not.

The EOA production line validation process could include:

1.     Determine whether the ratio between the garnishee amounts deducted versus total employee earnings is fair?

Unlike in Australia for example, where no garnishee order may reduce an employee’s wage to a figure lower than 80% of the rate prescribed under s37(1)(a)(i) of the Workers Compensation Act 1987, this is not yet the case in South Africa. It may be on the cards in future legislative amendments.

Presently though, there is no legislated guideline that prescribes the ratio that may (or may not) be deducted via EAO from an employee’s salary. For this reason, it is good for an employer to get involved in assessing the fairness of each garnishee order.  If your ‘employer’s intuition’ tells you that the ratio is way out of reasonable balance, then you need to assist your employee with a magistrate’s court application to have it duly set aside.

2.     Accurately track the total amount deducted over a prolonged period of time.

Be sure that your payroll department is making a monthly record of the total accruing payments that are being deducted from an employee’s salary. Total EOA payments may not exceed the legal limit as set out in the National Credit Act (NCA) Section 103(5). King further clarifies that the initial in duplum process, which was promulgated before the NCA, formerly only applied to the total debt amount. However, since the inception of the NCA, in duplum now also applies to ancillary debt recovery costs like service fees, collections, initiation fees, lawyers’ fees, etc.

3.     For each EAO, make an assessment of the financial literacy level of each employee linked to that particular EAO?

In many cases, employees with a limited ability to understand and comprehend complex financial and legal documents have become a serious issue that has impacted recent court decisions in the employees’ favour. Illiteracy is a valid defence in court. Should an employer have reason to believe that one of his/her employees didn’t know what they were signing, then this may be sufficient motivation to make a magistrates court application to have the EAO set aside.

4.     Determine whether the employee’s overall financial situation has changed?

For a multitude of reasons, an employee’s financial situation may have changed — for example, a spouse losing a job, calamity in the family and ill-health expenses. For this reason, there is an increasing call for magistrates to have a fair degree of judicial oversight over each case, where special consideration is necessary on a case-by-case basis. If an employer has reasonable reason to suspect that a particular employee’s circumstances have (significantly) changed, then there may be sufficient motivation to make a magistrates court application to have the EAO set aside.

What about the ITA88? — An enforced deduction for outstanding SARS-related PAYE/TAX owed.

The South African Revenue Service (SARS) can under Section 179(1)[ii] of the Tax Administration Act appoint a third party, who is then instructed to pay the amount an individual owes to SARS. Ian Hurst, advises the following 4 easy (yet often overlooked) steps when payroll departments get to deal with ITA88’s. [tweetthis remove_twitter_handles=”true” remove_hidden_hashtags=”true”]What about the ITA88?[/tweetthis]

  1. Check you SARS e-Filing —monthly checks are vital
  2. Talk to the employee — inform an employee of the reason for and legality of the SARS-specific ITA88 deduction and explain why you have to make the deduction.
  3. Keep accurate records — keep a record of what has been deducted because you may need this information if there are any follow-up queries down the line.
  4. Keep employee informed — always give them a payslip and when the amount owing on the ITA88 has been fully recovered, issue them with a letter confirming the completion thereof.

Need some more help?

On their website, National Debt Advisers invite interested and/or affected parties to contact them[iii] so that they may approach the court or firm on your behalf, and fight to have your garnishees rescinded. In addition, National Debt Advisers will report the culpable firms and credit providers to the National Credit Regulator (and other appropriate legal bodies for further investigation).

[i] http://debtfreedigi.co.za/you-dont-have-to-garnish-your-employees-salary-w-cape/

[ii] http://www.accountingandtaxclub.fspbusiness.co.za/articles/sars/what-you-need-to-know-about-an-ita88-176.html

[iii] http://nationaldebtadvisors.co.za/what-does-the-landmark-garnishee-judgment-mean-for-consumers/