A Costly Mistake
Imagine you’re running a company. The inspectors arrive for a compliance check. Instead of facing the audit, you offer them a "cold drink" to smooth things over.
It seems like an easy way to avoid fines or issues. But what happens when you need a Letter of Good Standing to secure a big contract? Suddenly, all those shortcuts come back to haunt you.
The Shortcut: A Hypothetical Scenario
An employer, let’s call him Mr. X, tries to bypass compliance. During inspections, Mr. X offers inspectors small bribes to avoid non-compliance notices. This lets him sidestep registering employees for provident funds, paying levies, and correcting underpayments.
For years, everything seems fine. But then Mr. X’s company needs a Letter of Good Standing to finalize a major supplier contract. Now, the truth comes to light.
The Fallout: A Hypothetical Scenario
The council finds two underpayment cases, totaling R20,000 owed to employees since 2021. Worse, Mr. X hasn’t deducted provident fund contributions from his employees since 2018.
A compliance expert calculates the unpaid contributions. Here’s what they find:
Employee 1: R39,800.75 in backdated deductions.
Employee 2: R29,546.75 in backdated deductions.
Total: R69,347.50.
To make matters worse, Mr. X now faces the challenge of deducting these backdated contributions from employee salaries. This creates several risks:
Employee Consent: Employees must sign an acknowledgment of debt. Without this, deductions cannot proceed.
Resignation Risk: Employees may quit rather than agree to high deductions.
Legal Limits: Deductions cannot exceed 30% of gross income. For one employee, this means R631.75 weekly over 63 weeks. For the other, it’s R404.75 weekly over 73 weeks.
Mr. X owes R70,000 in council returns. He must settle it through a Dispute Resolution Centre (DRC) agreement.
