Cost Of Workers’ Compensation

delegatus delegare non potest

Compensation Fund
Before discussing the present cost of workers’ compensation in South Africa, a few matters need to be put into perspective.  The so called Compensation Fund created in terms of the COID Act is exclusively from the contributions (assessments) paid annually by employers to the Compensation Commissioner.  Not a cent is contributed by the state to the Compensation Fund.  The general taxpayer has, therefore, no direct financial interest in the maintenance of the Fund.  All expenses including the benefits payable, the administration of the Act such as the salaries of the personnel and office accommodation, etc are paid out of the Compensation Fund.
What is thus the bottom line in a situation outlined above?  You, the employer, are not only paying the benefits to injured employees you are also paying the associated costs to administer the compensation to the injured.  Surprised to hear that? I do not blame you. Many a time I have felt that some officials are of the opinion that they are doing the injured and the employers a favour.

The trustees of the Compensation Fund
The legislator has appointed the Director-General: Department of Labour (as from 1 March 1998, previously the Compensation Commissioner) as the accounting officer to administer the Compensation Fund.  This change from Compensation Commissioner to Director-General came about after an amendment to the COID Act as from 1 March 1998.  The reason for this move remains a mystery not relevant to this discussion.  Although the COID Act nowhere refers to the term “trustee”, it is abundantly clear that when reading through the Act that the accounting officer’s duties are analogous to that of a trustee.  It is a situation where a group of employers, compelled by law, has entrusted money to another for payment to the owner’s creditors (injured employees) and the money in the interim is only in the custody of the person (the Director-General) to whom it has been entrusted (See R v Groenewald 1941 OPD 1941).  Money “entrusted” means just that; it does not mean it has become the “property” of the Department of Labour.  The money in trust should be utilised, administered, etc with abundant good faith and sound discretion.
The question is now, are you satisfied that this is how your money, the employers’ money, is taken care of, looked after and prudently spend?  Are you satisfied that the benefits are timely paid to the injured or the creditors such as the medical service providers on your behalf?  Please note “paid on your behalf” because that is what the legislator’s intention was.  Judge for yourself, you deal with it on a regular basis.  I cannot pass judgement as I am too far removed from the daily nitty-gritty of especially the claims administration.  If the “trustees” have in your evaluation failed their entrusted task of compensating according to the statutory and other prescriptions, you are also failing your duties should you willy-nilly accept these failures without any action whether individually or through your collective bargaining mechanisms.

Increase in the cost of worker’ Compensation
It is generally accepted that costs rise in line with the inflation rate (except petrol prices).  I presume that most of you are under the impression that your workers’ compensation expenditure (assessments) should rise accordingly.  That is a valid assumption.  The earnings limit from 2006 to 2007 was increased by approximately 6%.  This is the limit with which you are familiar and which is used for the calculation of both claims benefits and the annual assessment.  That is the good news as you can at least as with other types of expenditure budget with some accuracy.
The bad news is that it would appear that budgeting for future workers’ compensation expenditure is not that easy.  It either depends on the unpredictability of the system or the unknown increases in their costs.  To make projections in the assessment rates for budgeting purposes is risky business.  The assessment rate for the past and the current financial year is the rate at which your assessments will be calculated.  The rate is fixed according to industrial rating – in other words – the industry in which your business is classified.  I will quote a few to illustrate that the extent of the increases.




Percentage Increase

0116/  Mixed Farming




0400/ Underground Mining




0420/ Opencast Mining




0642/ Blending, distilling and/or manufacturing of spirituous liquors, including wineries; manufacturing of grape juice




0650/  Cigarettes and/or tobacco manufacturing




0700/ Manufacture of blankets and articles of a similar nature




0810/  The business of a builder’s hardware merchant with wood-working machine operations etc.




0910/ The business of a builder’s hardware merchant with wood-working machine operations




1052/  Vulcanizing including retreading as a separate business




1105/ leather clothing, boot, shoe and/or slipper manufacturing




1300/ Iron and steel production




1420/ Asbestos products manufacturing; Bitumen products manufacturing.




1910/ The business of cleaning and dyeing; dry-cleaning



9, 55%

Increases in the tariffs therefore range from approximately 5% to as much as 45%. The rate for Iron and Steel production (subclass 1300) has gone up by 151% since 1 March 2004! For underground mining the assessment rate from 1 March 2005 up to now has risen by 15,6%. Taking into account the fact that the employers in these industries are employing a large number of people, imagine what the financial impact of such enormous increases is.
Now, as you would have figured, annual inflation is already accounted for in the rise of the Earnings limit so, why such drastic increases over and above? The reason can be twofold:

* Safety in these industries has taken a turn for the worse, to put it mildly; and/or
* The Compensation Commissioner is overspending on administrative costs.

Look at the Compensation Commissioner’s financial statements, if you can obtain one, for the last number of years and judge for yourself. What is worrying is the fact that these drastic increases came after several years in which increases were apparently not necessary.

How does it affect you?
The result in the rise in cost for you is actually simple to explain. You are going to pay inflated assessments despite the fact that your employees are not receiving the same increases in the benefits. To what the substantial increases can be ascribed to is a matter of conjecture. You can improve safety by preventing accidents but will the Compensation Commissioner reciprocate by assessment rate reductions whether individually or for the industry? I have doubts. What I have no doubt about is the attitude of the “trustee”. Have you been advised in a spirit of transparency why these increases were necessary? I can find no such press release on their website or in the media. Why then not ask the Director-General or the delegated Compensation Commissioner to explain the financial situation if your industry is severely affected by rate increases. You have the right to do that, believe me, it is your money.

Till next month