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

by Garnish OrdersLatest Payroll News

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/

Garnishee Orders — Possible Legislative Changes on the Cards

by with No Comment Garnish OrdersLatest Payroll News

Spotlight On the Garnishee Order (Again!) — Possible Legislative Changes on the Cards


Speaking at a recent (3 October, 2015) two day Provincial General Council meeting at Coastlands Hotel, South Beach, KwaZulu-Natal (KZN) African National Congress (ANC) chairperson (also the KZN Premier) Senzo Mchunu, put the issue of garnishee orders (Emolument Attachment Orders, EAO’s) squarely back in the spotlight of South African labour issues. He said that garnishee orders affects policy.[i]  He alluded to the need for a review of the laws and regulations pertaining to Emolument Attachment Orders. Mchunu said that in order to address the burgeoning problem of SA’s growing consumer-debt nightmare, this proposed review is a necessary intervention, and that the government needed to help people in debt.

 

The renewed spotlight being cast upon the garnishee order system is in reaction to the spiralling debt crisis in South Africa. “There are many areas we need to look at. Like how the courts apply the law when it comes to garnishee orders” said the KZN ANC-chair. He further remarked that, “some people get garnishee orders even when they haven’t appeared in court. Sometimes money is taken without your permission, sometimes you are overcharged, sometimes there is duplication and other times once you have paid off the debt, they continue to charge you”.

 

“If we are to protect employees against what may seem to be unfair policy on garnishee orders, … then we need to look at every section of society that is affected by this policy. … We need to look at whether we have adequate policy, laws and regulations [to govern this]”, he maintained.

 

Mchunu’s statement should alert commercially oriented business enterprises to the ongoing necessity for prudent administrative and human resources management when it comes to following due process related to garnishee orders.

 

Employer administration of the garnishee order is not all that simple

As an employer, when it comes to garnishee orders, administration thereof is not all that simple to implement and manage.[ii]

 

Accordingly, in light of Mchunu’s broad national-standpoint, Ian Hurst, CEO of Paymaster Payroll, cautions employers not to lose the employee-wellbeing perspective on garnishee order ‘due process’ and administration. Hurst stresses that payroll departments “are dealing with people’s take-home pay”. As a result, in many cases, this frequently results in ‘surprise’ net “take-home pay” that shocks the employee. In many cases, these ‘surprises’ to the employee stem from EAO maladministration on the employer’s part. “This directly impacts an employee’s standard of living”, says Hurst.

 

Importantly, obligation remains with the employer to deduct stipulated monies and duly pay it over too the lawyer or collections agency.  Hurst advises payroll and HR departments to ensure that they comply with all aspects of the prescribed legislation pertaining to EAO’s.

 

“One way of assisting staff”, says Hurst, “… is to take a necessary compassionate approach towards the plight of the employee”. He suggests that payroll administrators can act as ‘soft’ (i.e. unofficial) financial counsellors to their staff[iii] by “encouraging the affected employee—having difficulty with an EAO—to go for debt counselling.”

Garnishee order issues are wide-ranging and complex

A short survey of recent media reports reveals solid evidence of the wide-ranging complexity that lies behind the implementation and management of EAO’s. These include liability for maladministration to garnishee order fraud, validity and invalidity of certain garnishee orders, to apparent flaws in the current garnishee order system. For a prominent recent case worthy of reminder, is to refer the reader to Wendy Appelbaum’s landmark judgement against illegally obtained EAO’s. These particular illegal garnishee orders were the work of embattled law firm Flemix & Associates, made on behalf of various microlenders.

 

A notable learning to be gained from the Appelbaum judgement serves as a warning to companies to “clear their payrolls of illegal deductions”.[iv] Seemingly, the trend is that debtors’ collective fight against the garnishee order system, in order to get rid of the “surprise garnishee order”, is a key issue that remains of importance to the ANC-led government.

 

Companies should be mindful of court judgements that are made in respect of EOA’s, by frequently scanning the media (ed.: and Specialist Company-blogs like this) for reports on these judgements. Precedents being set in these judgements may have a decided impact upon the manner in which new policy takes form in the future.

 

 

Industry expert — insights

Zak King, editor at Debtfree DIGI offers valuable insights[v] as to how current EAO-related legislation might change. “We may see increased judicial oversight, meaning that a judge or magistrate will have to consider each case, particularly if the debtor can afford the garnishee order. We hopefully will see greater enforcement of NCA Section 103(5), commonly called induplum.”[vi]

 

King advises that, should anticipated future change indeed be made to current EOA-related legislation, then HR and Payroll departments, and accountable management at all levels could be expected to remain alert, proactive and observant of ongoing EAO occurrences in the industry. An example of this, suggests King, is to factor in the tracking of the amount paid versus the Section 103(5) double-up limit so, as to prevent an overpayment. King said one thing was certain: that likely future changes to EOA-related legislation, in all probability, will spell out “more work” for the employer.

 

Therefore, it’s best for employers to remain on their toes by being proactive when it comes to the meticulous implementation and management of the garnishee order process. Prevention is better than cure! To save workers from surprise financial distress, it may be wise to consider building administrative checks and balances into the organisation’s relevant ‘admin’ processes. King suggests that, “since section 103(5) applies—regardless of other regulations or legislation—perhaps a note should be made of the original debt amount when a garnishee order (EAO) is received.” Thereafter, “a quick calculation-run could be made on exactly when the garnishee payment should reach the induplum[vii] (i.e. the basic double-up figure).”

 

Lastly, when closing the case on each garnishee order, King suggests that thorough enquiries first be made in order to ensure that the EAO is removed before closing the file on that particular garnishee order.

[i] Amanda Khoza, “ANC’s Mchunu Says SA Is Drowning in Debt,” News24, accessed October 5, 2015, http://m.news24.com/news24/SouthAfrica/News/ANCs-Mchunu-says-SA-is-drowning-in-debt-20151003.

[ii] Ian Hurst, “Why Is a Garnishee Order so Complicated & What Must You Check in This Order? – Hr Pulse,” Professional – Human Resources, HR Pulse, accessed October 5, 2015, http://www.hrpulse.co.za/employee-management/change-management/230287-why-is-a-garnishee-order-so-complicated-a-what-must-you-must-check-in-this-order.

[iii] “Payroll Administrators as Financial Counsellors,” Corporate website, Paymaster Payroll Solutions, accessed October 7, 2015, http://paymaster.co.za/financial-counselling/payroll-administrators-as-financial-counsellors/.

[iv] “Landmark Judgement Is Not End of Garnishee War,” Fin24, accessed October 5, 2015, http://www.fin24.com/City-Press/Landmark-judgement-is-not-end-of-garnishee-war-20150712.

[v] Zak King, Email Interview — Growing Consumer Debt, and Garnishee Orders Back in the National SA Labour Spotlight, interview by Adrian Baillie-Stewart, Email, October 7, 2015.

[vi] The common law in duplum rule holds that “interest stops running when the unpaid interest equals the outstanding capital.” — In Duplum Interest and the National Credit Act | Bentley Credit Management,” accessed October 15, 2015, http://www.creditmanagement.co.za/in-duplum-interest-and-the-national-credit-act/.

[vii] Ibid.

ENDNOTES and SOURCES

[1] Amanda Khoza, “ANC’s Mchunu Says SA Is Drowning in Debt,” News24, accessed October 5, 2015, http://m.news24.com/news24/SouthAfrica/News/ANCs-Mchunu-says-SA-is-drowning-in-debt-20151003.

[1] Ian Hurst, “Why Is a Garnishee Order so Complicated & What Must You Check in This Order? – Hr Pulse,” Professional – Human Resources, HR Pulse, accessed October 5, 2015, http://www.hrpulse.co.za/employee-management/change-management/230287-why-is-a-garnishee-order-so-complicated-a-what-must-you-must-check-in-this-order.

[1] “Payroll Administrators as Financial Counsellors,” Corporate website, Paymaster Payroll Solutions, accessed October 7, 2015, http://paymaster.co.za/financial-counselling/payroll-administrators-as-financial-counsellors/.

[1] “Landmark Judgement Is Not End of Garnishee War,” Fin24, accessed October 5, 2015, http://www.fin24.com/City-Press/Landmark-judgement-is-not-end-of-garnishee-war-20150712.

[1] Zak King, Email Interview — Growing Consumer Debt, and Garnishee Orders Back in the National SA Labour Spotlight, interview by Adrian Baillie-Stewart, Email, October 7, 2015.

[1] The common law in duplum rule holds that “interest stops running when the unpaid interest equals the outstanding capital.” — In Duplum Interest and the National Credit Act | Bentley Credit Management,” accessed October 15, 2015, http://www.creditmanagement.co.za/in-duplum-interest-and-the-national-credit-act/.

[1] Ibid.

Garnishee order : an assault on human dignity – judge

by with No Comment Garnish OrdersLatest Payroll News

Cape Town – A Western Cape High Court judge has ruled that the debt collecting procedure used by micro-lenders is “unconstitutional” and “an assault on human dignity”.

The application, brought by the University of Stellenbosch and the Legal Aid Clinic on behalf of 15 consumers, focused on the processes employed by micro-lenders to secure repayment of loans.

The University of Stellenbosch and the Legal Aid Clinic wanted the Emoluments Attachment Orders (EAOs) granted against the salaries of the 15 to be declared invalid. EAOs are more commonly known as garnishee orders.

“The individual applicants are a group of low income earners living in Stellenbosch, supporting themselves and their families on salaries of between R1 200 and R8 000 per month,” said Judge Siraj Desai.

 “The group includes farmworkers, cleaners, and security guards. For debtors who work in low paid and vulnerable occupations, their salaries or wages are invariably their only asset and means of survival. A substantial reduction of this asset has the potential of reducing human dignity.”

He went on to say that the ability of people to earn an income and support themselves and their families is central to the right to human dignity.

According to the judgment, in terms of legislation, there is no statutory limit on the EAOs which may be granted against a debtor or the amount which may be deducted from his or her salary. However, in other countries, a limit was imposed on the amount of income that may be attached, said Desai.

He said the “depletion of a debtor’s income as a consequence of it being attached to pay a judgment debt may lead to the subsequent loss of other property such as a house or movable assets owned by the debtor”.

“The reduction of a low earning debtor’s income has a direct impact on his right to shelter, health and family life,” said Desai.

Courtesy News24.com

The garnishee order – oh the pain

by with No Comment Garnish Orders

The Garnishee Order Not So Simple!
We are all familiar with the Garnishee order, that legal document that instructs us, the employer ,to deduct from one of our employee’s wages an amount of money every month and pay that over to another company (normally a law Firm) . I have always believed it was a simple procedure until I started reading and investigating exactly what was required of me.

  1. The company can be held liable for the outstanding debt if the garnishee was correctly served and the company failed to deduct the money.
  2. We need to pay the money over to the company demanding payment by the last day of each month or face penalties and interest (this will be added to the employees account)
  3. The company can withhold an administration fee (5%) but this is the added to the employee’s debt (is this ethical)
  4. I believe we have to communicate with the employee and tell them about the garnishee but also let them know what their rights are. It is our duty as employers to assist our employees in any way possible
  5. Lastly you do not need the employees consent to deduct this money from his salary.

So what must I check when I receive a garnishee order?

1. Has the employee consented to the garnishee order?
This consent must be in writing. This consent is very often given when the contract to lend the money or buy the item on H.P is signed. But it is worth checking.
2. Does the employee work for me?
If the employee works for you then we need to communicate to the employee that he has a garnishee order against his salary. If the employee does not work for you or no longer works for you then you must notify the clerk of the court that issued the garnishee order as well as the company demanding payment that this person is not in your employment.
3. Is this garnishee legal and binding?
A.The law stipulates that a garnishee order must be obtained in courts within the jurisdiction of the alleged debtor’s home or workplace.
B.Is this the right person, right identity number and address?

4. Is this garnishee affordable?
The law makes provision for the garnishee to be affordable and it the magistrate is meant to ensure that the employee can afford to pay the amount before he issues the garnishee order. In practice this does not happen very often and therefore it is our duty to assist our employees where we can. If the employee feels that the garnishee is unaffordable he can appeal the garnishee amount.

The Garnishee Order

by with No Comment Garnish Orders

The Garnishee order not as simple as it looks.

We are all familiar with the Garnishee order, that legal document that instructs us, the employer ,to deduct from one of our employee’s wages an amount of money every month and pay that over to another company (normally a law Firm) . I have always believed it was a simple procedure until I started reading and investigating exactly what was required of me.

1) The company can be held liable for the outstanding debt if the garnishee was correctly served and the company failed to deduct the money.

2) We need to pay the money over to the company demanding payment by the last day of each month or face penalties and interest (this will be added to the employees account)

3) The company can withhold an administration fee (5%) but this is the added to the employee’s debt (is this ethical)

4) I believe we have to communicate with the employee and tell them about the garnishee but also let them know what their rights are. It is our duty as employers to assist our employees in any way possible.

5) Lastly you do not need the employees consent to deduct this money from his salary.

So what must I check when I receive a garnishee order

1) Has the employee consented to the garnishee order.

This consent must be in writing. This consent is very often given when the contract to lend the money or buy the item on H.P is signed. But it is worth checking

2) Does the employee work for me. If the employee works for you then we need to communicate to the employee that he has a garnishee order against his salary. If the employee does not work for you or no longer works for you then you must notify the clerk of the court that issued the garnishee order as well as the company demanding payment that this person is not in your employment.

3) Is this garnishee legal and binding

a. The law stipulates that a garnishee order must be obtained in courts within the jurisdiction of the alleged debtor’s home or workplace.

b. Is this the right person, right identity number and address?

4) Is this garnishee affordable

The law makes provision for the garnishee to be affordable and it the magistrate is meant to ensure that the employee can afford to pay the amount before he issues the garnishee order. In practice this does not happen very often and therefore it is our duty to assist our employees where we can. If the employee feels that the garnishee is unaffordable he can appeal the garnishee amount.

The Garnishee Order Not So Simple!

by with No Comment Garnish Orders

The Garnishee Order Is Not as Simple As It Looks.

We are all familiar with the Garnishee order, that legal document that instructs us, the employer ,to deduct from one of our employee’s wages an amount of money every month and pay that over to another company (normally a law Firm) . I have always believed it was a simple procedure until I started reading and investigating exactly what was required of me.

  1. The company can be held liable for the outstanding debt if the garnishee was correctly served and the company failed to deduct the money.
  2. We need to pay the money over to the company demanding payment by the last day of each month or face penalties and interest (this will be added to the employees account)
  3. The company can withhold an administration fee (5%) but this is the added to the employee’s debt (is this ethical)
  4. I believe we have to communicate with the employee and tell them about the garnishee but also let them know what their rights are. It is our duty as employers to assist our employees in any way possible (download sample garnishee letter)
  5. Lastly you do not need the employees consent to deduct this money from his salary.

So what must I check when I receive a garnishee order?

Has the employee consented to the garnishee order?
This consent must be in writing. This consent is very often given when the contract to lend the money or buy the item on H.P is signed. But it is worth checking.

Does the employee work for me?
If the employee works for you then we need to communicate to the employee that he has a garnishee order against his salary. If the employee does not work for you or no longer works for you then you must notify the clerk of the court that issued the garnishee order as well as the company demanding payment that this person is not in your employment.

Is this garnishee legal and binding?
A.The law stipulates that a garnishee order must be obtained in courts within the jurisdiction of the alleged debtor’s home or workplace.
B.Is this the right person, right identity number and address?

Is this garnishee affordable?
The law makes provision for the garnishee to be affordable and it the magistrate is meant to ensure that the employee can afford to pay the amount before he issues the garnishee order. In practice this does not happen very often and therefore it is our duty to assist our employees where we can. If the employee feels that the garnishee is unaffordable he can appeal the garnishee amount.