The two-pot system exposed reams of employers who had been deducting pension contributions from employees’ salaries but failing to remit those funds to retirement funds New punitive measures will also apply to employers who fail to pay medical scheme contributions as agreed. (Photo: Gallo Images/Brenton Geach) | A stethoscope resting beside stacks of coins on an electrocardiogram graph. (Photo: iStock) 
Minister of Employment and Labour Nomakhosazana Meth’s withdrawal of the exemption on 13 January applies to contributions to benefit funds which include pension, provident, retirement, medical schemes or similar funds.
Nicci van Vuuren, a partner at Webber Wentzel, notes that contributions to pension, provident or retirement funds are also regulated under the Pension Funds Act. In this regard, labour inspectors can now enforce compliance with section 34A alongside the existing regulatory powers of the Financial Sector Conduct Authority (FSCA).
“The timing and nature of this withdrawal is significant. Section 50(9) of the Basic Conditions of Employment Act provides that the minister may withdraw a determination following an application by an affected party, being an employer organisation, registered trade union or covered employee. This procedure suggests that the change was prompted by stakeholder concerns about widespread employer noncompliance, likely linked to issues identified following the implementation of the two-pot retirement system in September 2024,” she says.
The two-pot system exposed reams of employers who had been deducting pension contributions from employees’ salaries but failing to remit those funds to retirement funds, with outstanding contributions totalling billions of rands. The withdrawal of the exemption is likely to be a legislative response to strengthen enforcement mechanisms against such noncompliance.
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Lebogang Mogashoa, the Pension Funds Adjudicator, said that over the years there have been several regulatory reforms aimed at stemming the late or nonpayment of contributions, such as criminalising the nonpayment of contributions and introducing personal liability for directors of companies that fail to timeously pay contributions. “Notwithstanding the seriousness of the sanctions introduced through these reforms, the nonpayment of contributions has not been sufficiently deterred. Against this background, we welcome the withdrawal of the previous ministerial determination issued under the BCEA,” he said.
Section 34A of the Basic Conditions of Employment Act (BCEA) sets out strict payment deadlines that employers must meet. These deadlines apply in respect of any amount deducted.
Amy King, a knowledge lawyer from Webber Wentzel, explains that an employer that deducts any amount from an employee’s remuneration for payment to a benefit fund must pay the amount to the fund within seven days of the deduction being made. Any contribution that an employer is required to make to a benefit fund on behalf of an employee, that is not deducted from the employee’s remuneration, must be paid to the fund within seven days of the end of the period in respect of which the payment is made. These obligations do not affect any requirement under the rules of a benefit fund to make payment within a shorter period.
These timeframes mirror the obligations under the Pension Funds Act, which requires relevant contributions to be transmitted to the fund not later than seven days after the end of the month for which the contribution is payable.
“The practical difference is that section 34A of the BCEA imposes different trigger dates depending on whether the contribution is an employee deduction or an employer contribution and when the employer does the payroll run which may not necessarily be at the end of the month. For example, if an employer’s payroll runs on the 25th of each month, payment of contributions to the fund must take place within seven days from the 25th,” King says.
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However, Mogashoa cautioned that the Pension Funds Act already provides strict timelines for payment of pension contributions and serious sanctions for failure to adhere to these timelines, yet these have not stopped the illegal conduct of nonpayment of contributions. “This is evidence that the availability of additional regulatory sanctions alone (whether under the Pension Funds Act or the Basic Conditions of Employment Act or both) is not the panacea for late payment or nonpayment of contributions. Effective enforcement, visible consequences and finding a way to filter serial offenders out of the system on a permanent basis would go a long way in forcing behaviour change,” he said.
What are the consequences of nonpayment or late payment?
Employers are now subject to dual enforcement mechanisms as follows: ⚖️Under the Pension Funds Act: A fine of up to R10-million, imprisonment for up to 10 years, or both. Directors and senior management can be held personally liable; and
⚖️Under the BCEA: Labour inspectors can issue compliance orders and impose administrative penalties for contraventions of section 34A.
Van Vuuren says the dual enforcement regime means that employers who fail to pay contributions timeously may face concurrent action from both labour inspectors and the FSCA, with potentially overlapping penalties.
“Employers should immediately review their payroll processes to ensure compliance with the seven-day payment requirements for both employee deductions and employer contributions, paying particular attention to the different trigger dates under section 34A,” she warned. DM