Employers face tougher enforcement for late pension fund contributions

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JEREMY MAGGS: Pay late and the consequences just got a lot more serious for employers. A quiet regulatory change in January now means late or unpaid benefit fund contributions can trigger action from both labour inspectors and financial regulators, with criminal liability  firmly on the table.

I want to discuss what has changed, why it matters, and what employers need to do right now. In that respect, from the law firm Webber Wentzel, I’m joined by partner Nicolette van Vuuren. Nicolette, a very warm welcome.

What exactly has changed this month and why is this a bigger deal than many employers maybe realise?

NICOLETTE VAN VUUREN: We’ve always had, from a pension fund perspective, regulation from the Financial Sector Conduct Authority (FSCA). Although they didn’t have actual regulation over the employers, they could name and shame, they went to court to get personal liability for directors in instances where there was arear contributions.

Listen/read: FSCA cracks down on over R5bn in unpaid pension fund contributions [2025]

But what has changed now is that the Minister of Labour (Nomakhosazana Meth) has actually now made section 34A of the Basic Conditions of Employment Act applicable to employers who contribute to retirement funds that are governed by the Pension Funds Act.

What that means is that they are now making sure that contributions are paid over within a certain period.

That being seven days after the deduction from members, and if the employer is making a contribution, seven days after the month in which they are due. So now the inspectors from a labour perspective are going to have regulatory authority over those employers, where in the past they haven’t had that.

JEREMY MAGGS: What drove the decision, do you think, to change this? Where were employers being tardy and was it a widespread problem?

NICOLETTE VAN VUUREN: Look, we’ve seen, basically in the private security sector, that employers haven’t been paying contributions over.

From when the two-pot system came into being, members actually started seeing that these contributions hadn’t been paid over because they wanted to withdraw and they couldn’t because they were arrear contributions.

So to make sure that there was more regulation over employers, I know the EFF (Economic Freedom Fighters) went and approached the minister, and based on meetings that they’ve had, and the minister has now decided to make sure that section 34A is now applicable.

JEREMY MAGGS: Nicolette, the seven-day payment rule sounds simple, but the trigger dates, as I read it, can differ. Where do you think employers then are most likely to trip up in practice?

NICOLETTE VAN VUUREN: In terms of the Pension Funds Act, they have to pay over within seven days after the month in which the contributions are due. In other words, if they are due for the month of January, they’ve got to pay by 7 February.

With this new amendment, once they deduct from the employee’s salary, they have seven days to pay over.

If your payment date is the 25th of the month, they have seven days from the 25th of the month, whereas if there’s only an employer contribution, in other words they’re not deducting from the salary, they can pay within seven days from the end of the month.

I think that is going to be the problem. It sounds minuscule, the time period, but I think that is where the problem is going to come in.

They’re going to deduct those contributions and in employers’ minds they may think that they only have seven days from the end of the month to pay over, whereas that period may be shorter because they deducted before the end of the month.

JEREMY MAGGS: There’s now dual enforcement as far as this is concerned, but as in everything, is there the capacity to actually exercise that and make sure that people are complying with the law?

NICOLETTE VAN VUUREN: Yeah, I think from a labour perspective we do see compliance orders issued often. I think if a member or an employee reports it to the Department of Labour, I think we are going to see regulation from the Department of Labour.

Read:
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From the FSCA point of view, I think they can just really carry on doing what they have been doing, which is basically naming and shaming. Funds could get more involved and approach the courts to enforce personal liability against directors.

But I do think we’re going to see more from a labour perspective, where the inspectors are now going to start issuing compliance notices.

JEREMY MAGGS: Directors and senior managers can now be personally liable. What does it mean, then, for boards and executives who assume often that payroll is someone else’s problem?

NICOLETTE VAN VUUREN: Yeah, that’s quite a good question. We saw last year the High Court in Cape Town issued a judgment where the directors were held personally liable.

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In fact, the defences that those directors used were, well, we actually only oversee the company, we don’t get involved in the management of the financial affairs. But the court said, well, you’re a director, you should be overseeing every aspect of the business and therefore you are personally liable.

The courts are really not taking any excuses from directors. They’re saying you’re managing and overseeing it therefore, you are personally liable.

JEREMY MAGGS: What are the worst-case consequences that employers then should understand; whether it’s criminal sanction or even fines?

NICOLETTE VAN VUUREN: From an FSCA perspective, the Pension Funds Act does have severe consequences. We don’t really see those happening in the industry at the moment.

Criminal charges can be laid and the FSCA is taking a different approach, they would rather work with employers to ensure that the members are in a good position and their interests are protected, rather than issuing fines that the employer probably can’t afford in any event.

Read:
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We haven’t really seen those fines issued. There are fines of up to R10 million and imprisonment, but the FSCA is rather working with the employers to ensure that the members have those amounts and the benefits in their retirement savings.

JEREMY MAGGS: If you had to recommend one immediate action to employers this week to reduce risk, what would it be?

NICOLETTE VAN VUUREN: Diarise and make sure that your payroll systems are properly implemented to ensure that those contributions are paid over within the seven days of deducting them from members.

Ordinarily they would have paid them over within the seven days after the end of the month. But I think that is where the critical aspect is going to come in, that employers need to pay over within seven days from deducting.

JEREMY MAGGS: Nicolette van Vuuren from Webber Wentzel, thank you very much indeed. I appreciate your time.

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