Unemployment Insurance Act, 2001 (Act No. 63 of 2001SchedulesSchedule 2 : Mathematical calculation of Contributor's Entitlement |
The benefit to which a contributor is entitled is calculated in one of two ways, depending on a contributor’s income prior to becoming unemployed :
| (1) | Contributors who earned less than a particular amount (known as the "benefit transition income level") are entitled to a percentage of their previous pay. |
| (2) | Contributors who earned more than the benefit transition income level are entitled to a flat benefit, equal to the entitlement of a contributor who was previously paid at the benefit transition income level. |
The benefit level
The 1953 International Labour Organisation Convention (Convention No. 102) stipulates that the wage of a skilled manual worker should determine the appropriate income level at which to set a ceiling for membership of a social insurance scheme. Over the years, South Africa’s Unemployment Insurance scheme has roughly kept pace with this guideline. The benefit transition income level is therefore linked to this rate. The current income ceiling is R8 099 per month. This will become the initial benefit transition income level for the purposes of this Act. However, in terms of section 12(3)(a), the Minister may change the benefit transition income level from time to time to reflect changing patterns of income.
Contributors who previously earned less than the benefit transition income level
For contributors who earned less than the benefit transition income level, entitlement to benefit is earnings-related. A contributor’s entitlement is calculated according to the following formula :
Benefit = Daily Income * IRR
where IRR is the Income Replacement Rate corresponding to the contributor’s daily income.
Daily Income
If a contributor was paid weekly, daily income is the weekly rate of pay divided by 7.
If a contributor was paid fortnightly, daily income is the fortnightly rate of pay divided by 14.
If a contributor was paid monthly, daily income is the monthly rate of pay multiplied by 12, then divided by 365.
Income Replacement Rate
The Income Replacement Rate (IRR) determines the percentage of a contributor’s previous income to which the contributor is entitled in the form of benefits. The IRR is a variable, so it defines a sliding scale. A contributor who previously earned a low wage is entitled to receive benefits representing a larger proportion of her or his previous income than a contributor who previously earned a higher wage.
The IRR is at its maximum when income equals zero, and it reaches its minimum where income is equal to the benefit transition income level. The maximum IRR is currently set at 60%. The minimum IRR is currently set at 38%. However, the Minister may, in consultation with NEDLAC vary the minimum maximum income and flat replacement rate in terms of section 12(3)(b) but cannot reduce the minimum IRR to any percentage below 38. The Minister may from time to time after consultation with Parliament, vary the IRR and the benefit period by regulations.
[This paragraph substituted by section 17 of Notice No. 35, GG 40557, dated 19 January 2017 (Unemployment Insurance Amendment Act, 2016)]
Using current values, the IRR can be calculated according to the following formula :
IRR = 29.2 + (99779.68 / (3239.6 + Y1)
where Yi represents a contributor’s monthly rate of income. (Consistency of units is essential. To calculate IRR from daily or weekly rates of pay, please refer to the more detailed explanation of the IRR formula in the technical note below.)
Contributors who previously earned more than the benefit transition income level
Contributors who earned more than the benefit transition income level are entitled to a flat benefit equal to the benefit transition income level multiplied by the minimum IRR.
At the current benefit transition income level of R8 099 per month, this works out to R101.18 per day :
Daily income = (8099 * 12) / 365) = 266.2685
IRR = 38% or 0.38
Benefit = 266.2685 * 0.38 = 101.18
Duration of benefits
In terms of section 13(3), a contributor is eligible to receive one day’s benefit for every six completed days of employment, up to a maximum of 238 days (34 weeks). A contributor will therefore be eligible to claim benefits for the maximum duration after being continuously employed for four years. If a contributor has already drawn benefits (other than maternity benefits) in terms of this Act in the preceding four years, the number of days for which the contributor is eligible to claim benefits will be reduced accordingly.
To calculate the number of days of benefits to which a contributor is entitled :
| (1) | Determine the total number of days that the contributor was employed (and contributing) in the four-year period immediately preceding the date of application for benefits. |
| (2) | Divide the total number of days by 6, disregarding any remainder or fractional portion of the result. |
| (3) | Subtract the number of days (if any) for which the contributor claimed benefits (other than maternity benefits) in terms of this Act during the preceding four years. |
Amount of benefit payment
The benefit payment to which a contributor is entitled in any given period shall be the amount of the benefit entitlement multiplied by the number of days for which the contributor is eligible to receive benefits during the payment period.
Technical note on the Calculation of IRR
The sliding scale for the Income Replacement Rate (IRR) is represented by a portion of the curve (rectangular hyperbola) produced by a graph of the function y = 1/x, where the y axis represents the IRR and the x axis represents income. However, in order to associate this curve with values that are meaningful for this purpose, it is necessary to apply adjusting formulae.
Calculating the IRR associated with any given level of income below the benefit transition income level can be done in three steps :
| (1) | the rate of income is transformed into a corresponding value on the x axis (xi). The formula for this is: |
Y1 (X1 – X1) YLRR / (x2 – X1)(1)
Where :
Y1 is the contributor’s rate of income;
YLLR is the benefit transition income level; and
x1 and x2 are constants that determine the portion of the curve that is used to calculate IRR.
The current values of the parameters YLRR, x1 and x2 are :
YLRR = R8 099 per month
x1 = 2
x2 = 7
Using these values, expression (1) can be simplified to :
X1 = 2 + (Yi/1619.8) (1a)
where Y1 is expressed as a monthly rate of income. [It is important to ensure that both the contributor's rate of income (Y1) and the benefit transition income level (YLRR) are expressed in the same units-monthly, weekly, or daily.]
| (2) | The y values corresponding to the x values are calculated using the general formula : |
y = l / x (2 )
thus:
y1 = 1/ x1,
y2 = 1/ x2,
y1 = 1/x1;
| (3) | The y1 value is then converted to the corresponding IRR. The formula for this is: |
IRR = LRR + (y1 - y2) (URR - LRR) / (y1 - y2) (3)
Where :
IRR is the income replacement rate;
LRR is the lower (minimum) income replacement rate; and
URR is the upper (maximum) income replacement rate.
The current values of the parameters LRR, URR, y1 and y2 are :
LRR = 38%
URR = 60%
y2 = 1/7
y1 = 1/2
Using these values, expression (3) can be simplified to :
IRR = 61.6y1; + 29.2 (3a)