Public comment sought on payroll deductions

Friday, March 9, 2018

The public has until the end of April to comment on a discussion paper on payroll deductions covering all employees in the public and private sector.

A joint effort of the Reserve Bank and National Treasury, the consultation paper focuses on addressing issues relating to discretionary or voluntary payroll deductions covering all employees in South Africa from both the public and private sectors.

“The Reserve Bank, in collaboration with National Treasury, has published a consultation paper on payroll deductions to solicit comment on the most appropriate regulatory option for addressing the abuse of payroll by collectors, such as financial product or service providers,” said the central bank this week.

The bank said over the years, the number of entities that extend credit, and offer products and services to deduct debt repayments, insurance premiums and payments towards savings products from payroll (a service commonly referred to as payroll deduction) has increased.

Meanwhile, examples of discretionary or voluntary payroll deduction include repayments of home, car or other types of personal loans, deductions for savings products or insurance premiums.

The bank said these services are usually offered with prior agreement between employers and employees and in certain instances, are requested or initiated by financial institutions, including financial intermediaries.

“At their best, payroll deduction services can lower the credit risk to financial product or services providers making the collections and therefore increase access by employees to a broader range of financial services. However, payroll deductions can also promote preferential collections and information asymmetries, and there are also unscrupulous operators who abuse the payroll deduction services system, leaving employees with very little to take home,” said the central bank.

Reforming debt-collection 

The Reserve Bank said the discussion paper is part of a broader set of reforms aimed at cleaning up/improving the entire debt-collection system. This is to increase confidence in the payment system, and to ensure that payments are collected from employees’ salaries and/or consumers’ bank accounts and paid over to collectors or product/service providers in a manner that is safe, efficient and that affords the necessary protections to the consumers and/or employees, as well as the collections system and the payment system as a whole.

“These reforms have to be undertaken carefully so that they do not discourage employer-employee benefit schemes as well as arrangements that will make access to credit, insurance or savings products more difficult, or expensive. This requires balancing the protection of employees from abuse with making it easier to collect debts, premiums and deductions for savings products via the payroll and avoiding deliberate by-passing and undermining of the formal national payment system collection methods.”

All options explored in the discussion paper propose the setting of a threshold for payroll deductions as a way of guaranteeing that each employee is still left with a decent amount of money after the payroll deductions.

“In the end, National Treasury and the Reserve Bank’s objective is to ensure that the payroll the deduction system treats employees fairly and protects them from abuse.”

Other objectives include that the payroll deduction system:

 · Remains a safe and efficient means of collection;

 · Is transparent and does not promote undue preference;

· Prevents financial crime (e.g. fraud in the payroll deduction system) and the promotion to access of financial services.

Comments on the discussion paper of which the closing date is 30 April should be emailed to:

Meanwhile an industry workshop has been planned for 28 March 2018. –

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