giving employees credit? you could be fined
9 May 2007

Employers who make loans to employees will face penalties if they do not comply with the National Credit Act, a corporate law firm said on Tuesday.

Webber Antzel Bowens senior associate, Helyn Patten, said employers would have to register as credit providers to satisfy the criteria of the National Credit Act or would face a fine or imprisonment.  Patten said under the act, employee loans would be classified as credit agreements if there was a deferral of payment and a fee, charge or interest is levied on the deferred amount.

"The National Credit Act applies to every credit agreement between parties dealing at arm's length and made within, or having an effect within, South Africa, subject to a number of exclusions," Patten said. "It could be argued that employee loans are credit agreements which are concluded between parties not dealing at arm's length."

Patten said the National Credit Regulator, however, considers employee loans to fall within the ambit of the National Credit Act.

The correct interpretation would have to be determined by the courts in due course.

Another criteria was if the total principal debt owed under all outstanding employee loans exceeded R500 000.

Patten said an employer who satisfied these two criteria as of 1 June 2006 (the effective date of the National Credit Act) and failed to register as credit providers by 28 July 2006, may still do so, but would run the risk of being issued with a notice by the National Credit Regulator requiring the employer to register as a credit provider.

"In addition, the employer may incur a penalty (imposed by the National Credit Regulator, in an amount, still to be prescribed)," Patten said. "It is an offence not to comply with such a notice and an employer may be subject to a fine or to imprisonment not exceeding 12 months or to both a fine and imprisonment."

Patten said employee loans concluded after 1 June 2007 may be declared unlawful by the courts if an employer was required to and has not yet registered as a credit provider.

"Employers who don't fall into either of the above two categories and therefore don't need to register as credit providers must still comply with the provisions of the National Credit Act to the extent that the Act applies to the employee loans," Patten said.

Sapa, www.iafrica.com