Labour inspectors must now also check if employers pay over pension contributions

Few employees found it necessary to check whether their employers actually paid over their pension fund contributions and those of the employer before the two-pot retirement system was implemented, and they found there were no funds in their pension funds. Now, labour inspectors must check that too.

The two-pot retirement system was implemented on 1 September 2024 to give pension fund members the opportunity to access a third of their retirement savings once every year to pay for emergencies. This was done to prevent people from resigning their jobs just to get to their pension fund money that would then be paid out in full.

With the two-pot retirement system, two-thirds of your pension stays in the fund, even if you resign, and then you can only move it to another fund.

ALSO READ: Financial distress no excuse for not paying over pension fund contributions

Disappointment when employees found their pension funds empty due to non-payment

However, there was great disappointment when people found their employers never paid over their contributions, which means there was nothing to draw from. The biggest culprits were the private security and motor industries, as well as municipalities. Unions and employees called for government to act to stop employers from non-payment.

The trustees of a pension fund could institute charges against an employer who failed to pay over employees’ contributions, but so far, only two were prosecuted. People wanted a faster approach.

Section 34A of the Basic Conditions of Employment Act regulates the timing of payments by employers to employee benefit funds, including retirement, medical aid and other funds.

On 13 January 2026, the minister of employment and labour issued a notice under section 50(9)(a) of the Basic Conditions of Employment Act, withdrawing a 2003 exclusion relating to contributions payable to benefit funds regulated under the Pension Funds Act.

With immediate effect, section 34A of the Act now also applies to benefit funds governed by the Pension Funds Act. This means that labour inspectors are now empowered to verify whether employers paid contributions into the correct funds, request proof of payment and contribution schedules and take enforcement action where employers are non-compliant.

ALSO READ: Unpaid pension contributions: FSCA reports more than thousand employers to police

Notice to empower labour inspectors a significant regulatory shift for pension funds

Imraan Mahomed, director and Thato Makoaba, associate for employment law at Cliffe Dekker Hofmeyr, say the notice marks a significant regulatory shift.

“Section 34A obliges an employer who deducts amounts from an employee’s salary for payment to a benefit fund to pay such amounts to the fund within seven days of the deduction. These provisions are designed to protect employees by ensuring that deducted or promised contributions reach the relevant benefit funds without delay. However, there has been much publicity around employers’ failure to discharge this duty.”

Mahomed and Makoaba explain that the minister of labour issued a section 50(1)(a) under the Act on 24 December 2003, which excluded the application of section 34A to employers and employees in relation to benefit funds regulated under the Pension Funds Act 24 of 1956.

The effect of that notice was that:

• Labour inspectors were unable to enforce the seven-day payment obligation regarding retirement fund contributions.
• As a result, enforcement of contribution delays fell outside the scope of the Act for more than two decades. Mahomed says this exemption created a significant enforcement gap for the Department of Employment and Labour, leaving employees exposed to employers who deducted contributions but failed to transfer them to the appropriate funds.

ALSO READ: Two-pot retirement system: Nothing for thousands of pension fund members

What are the practical implications of labour inspectors getting involved for employers?

“Employers should review their payroll and contribution processes to ensure compliance. In particular, employers must ensure that employer contributions are paid within seven days of the end of the applicable pay period.

“However, section 34A of the Act imposes a different trigger date of the seven days compared to the trigger date under section 13A(3) of the Pension Fund Act. Employers must consider this.”

Mahomed and Makoaba point out that employers should be aware that they are now subject to dual enforcement for non-payment of benefit fund contributions.

“Under section 34A of the Act, labour inspectors can issue compliance orders and impose administrative penalties. Under the Pension Funds Act, non-payment is a criminal offence punishable by a fine of up to R10 million, imprisonment for up to 10 years, or both in terms of section 37(1)(c). In addition, directors can be held personally liable under section 13A(8).”

ALSO READ: 149 municipalities are R1.4 billion in arrears on their pension fund payments

Non-compliance rife despite criminal liability, but labour inspectors will change this

Deirdre Phillips, partner and Chloë Loubser, knowledge and learning lawyer at Bowmans, point out that despite the potential criminal liability, non-compliance by employers has been rife.

In September last year, the Financial Sector Conduct Authority (FSCA) revealed that, as of 31 March 2025, it received reports of over 15 000 employers in contravention of section 13A of the Pension funds Act and published the names of over 5 000 employers due to the severity and duration of their arrears.

The office of the Pension Funds Adjudicator also recorded in its annual report that most of the complaints it received related to non-compliance with section 13A.

ALSO READ: Two-pot retirement system: one reason for more complaints to adjudicator

How companies can stay out of trouble with labour inspectors

Phillips and Loubser say to stay out of trouble, employers should plan practical steps to ensure compliance. Some of the steps should include:

• Avoiding deducting contributions materially in advance of month-end if cash-flow constraints or payroll processes make two distinct payment cycles difficult to manage
• designing payroll and finance processes to meet the earlier of the two triggers
• where feasible, aligning the deduction event as close as practicable to month-end to reduce the window where two different clocks run (however, this does not change the employer’s obligation to pay within seven days of the actual deduction)
• tightening payroll processes to ensure that employee deductions and employer contributions are paid into funds within the statutory window periods
• maintaining accurate records demonstrating the timing and quantum of each deduction and contribution, together with supporting documentation, that is readily accessible upon inspection and
• preparing for inspections, including establishing protocols/response plans and training front-line managers to deal with labour inspectors.