On October 6, 2024, South Africa’s Department of Employment and Labour made a significant announcement regarding the expansion of the budget for the Temporary Employer-Employee Relief Scheme (TERS). The budget has been increased from R400 million to R2.4 billion per annum to address the growing economic challenges and prevent layoffs across various industries. The expanded budget will be crucial for supporting businesses in distress, stabilizing the economy, and preserving jobs amid rising economic uncertainties. Minister of Employment and Labour, Nomakhosazana Meth, emphasized the importance of this initiative as a proactive response to the fragile economic environment and a safeguard against further job losses.

Overview of TERS

The Temporary Employer-Employee Relief Scheme (TERS) is a critical intervention by the South African government aimed at providing financial assistance to companies in financial distress. This initiative enables employers to retain their workforce during challenging periods, as TERS covers employee salaries for up to 12 months. The scheme allows businesses to focus on implementing turnaround strategies to regain financial stability while ensuring that their employees continue to receive compensation. The companies, during this time, are only responsible for covering employee social costs such as contributions to provident funds and medical aid.

Administered by Productivity SA, an agency under the Department of Employment and Labour, TERS also offers expert advice and support in formulating and implementing these turnaround strategies. Minister Meth has urged companies experiencing signs of financial distress to apply for TERS as soon as possible, citing the necessity of early intervention.

“The nature and degree of distress will be objectively measured through indicators, including but not limited to a decline in revenue,” stated Minister Meth. The application process for TERS begins at the Commission for Conciliation, Mediation and Arbitration (CCMA) and is free of charge, with no application or administrative fees required. The CCMA manages the single adjudication committee responsible for reviewing TERS applications, ensuring that all decisions are made fairly and based on objective indicators.

Why the Budget Increase?

The substantial increase in the TERS budget is a response to growing economic pressures in South Africa, which have led to widespread job losses in various sectors. According to the CCMA, during the 2023/2024 financial year, 38,428 employees were at risk of retrenchment. Out of these, 14,887 jobs (or 39%) were saved through different interventions, including TERS. However, 22,554 workers still lost their jobs during this period, highlighting the need for further measures to mitigate economic fallout.

The expanded TERS budget aims to reverse the trend of rising unemployment, especially in sectors heavily impacted by the country’s economic challenges, such as mining, manufacturing, and telecommunications. “The increase in the TERS budget is a proactive response to volatile economic trends that threaten the livelihoods of impoverished workers and the sustainability of businesses,” said Minister Meth. “Our goal is to preserve jobs and support companies facing financial difficulties.”

By increasing the budget to R2.4 billion, the Department of Employment and Labour hopes to ensure that companies in distress can access the necessary financial support to avoid retrenchments. This, in turn, will help maintain economic stability during challenging times, with a focus on preventing widespread job losses and ensuring that businesses remain operational.

Sectors Most Affected by Job Losses

Several key industries have experienced significant job losses over the past financial year. These include:

1. Mining: This sector recorded the highest number of job losses, with 5,153 workers retrenched due to decreased demand and operational difficulties.
2. Manufacturing: A total of 2,125 job losses were reported in this sector, as factories faced disruptions in supply chains and reduced demand for products.
3. Telecommunications: This sector saw 1,680 job losses, attributed to reduced investments and financial pressures affecting telecommunications firms.

These numbers highlight the importance of the TERS scheme in preventing further job losses, especially in sectors that are crucial to the South African economy. Mining, manufacturing, and telecommunications represent significant contributions to South Africa’s GDP, and their stability is vital for overall economic recovery.

Impact of TERS on Key Industries

Since its inception, TERS has played a vital role in supporting industries that have been severely impacted by the economic downturn, particularly during the COVID-19 pandemic and the subsequent global economic instability. Among the most affected sectors are hospitality and tourism, manufacturing, retail, and transportation:

• Hospitality and Tourism: This sector, which includes hotels, restaurants, and travel agencies, was hit hard by the sharp decline in international and domestic tourism. TERS has been instrumental in keeping businesses afloat, allowing them to retain employees despite reduced demand.
• Manufacturing: The disruption of global supply chains and reduced consumer demand for manufactured goods have affected this sector significantly. TERS has helped manufacturing companies navigate financial challenges by providing salary support.
• Retail: Non-essential retail businesses have faced reduced consumer spending, further exacerbated by inflationary pressures and economic uncertainty. TERS has provided much-needed relief to keep workers employed in these sectors.
• Transportation: Reduced travel and transportation operations have led to widespread financial strain in this sector, particularly for bus services, airlines, and logistics companies. TERS has been crucial in mitigating the impact by helping companies retain their workforce.

Economic Significance of TERS

The expanded budget for TERS not only demonstrates the government’s commitment to preserving jobs but also reflects the broader economic significance of the scheme. By preventing layoffs, TERS plays a critical role in ensuring economic stability during periods of crisis. Retaining employees ensures that businesses remain operational and ready to recover once economic conditions improve. Moreover, by alleviating the financial burden on companies, TERS helps preserve consumer demand, which is essential for overall economic recovery.

The Department of Employment and Labour has noted that TERS continues to be a key component in South Africa’s response to ongoing economic challenges. The scheme is expected to play a central role in the country’s efforts to stabilize the economy, particularly as businesses continue to face external shocks such as global inflation, geopolitical tensions, and supply chain disruptions.

Application Process for TERS

To qualify for TERS, employers must meet specific eligibility criteria and provide detailed documentation to support their application. The following documents are typically required:

1. Audited Annual Financial Statements for the past two financial years.
2. Independently Reviewed Annual Financial Statements for companies not legally required to be audited.
3. Management Accounts with comparative figures if the latest financial statements are older than three months.
4. Termination of Contract and Bank Statement for individual applicants.
5. A Business Case outlining the triggers for financial distress and proposed remedial actions.

The documentation is used to assess the extent of financial distress and the company’s eligibility for support. The process is overseen by the CCMA, which ensures that all applications are evaluated based on consistent and objective criteria.

Conclusion

The increase in the TERS budget to R2.4 billion per annum represents a vital lifeline for South African businesses in distress. By providing financial assistance to companies facing economic difficulties, TERS aims to prevent widespread job losses, stabilize the economy, and support businesses in their efforts to recover. The scheme’s expansion reflects the government’s proactive approach to safeguarding employment and ensuring that key industries remain operational in the face of ongoing economic challenges. As businesses continue to face financial pressures, TERS will be instrumental in preserving jobs and supporting long-term economic recovery.

photo source: Google

By: Montel Kamau

Serrari Financial Analyst

8th October, 2024