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Recovering debt from an employee

Content provided by Sanlam. See Financial Solutions for Business Owners, for tailormade financial advice.


CrCards.jpgSometimes people resign from a business and due to a number of different circumstances, they still owe money to their previous employer.

Here are a few guidelines to help you with the recovery of employee debt.

Firstly, where an employee agrees in writing that they owe the money, the employer may deduct the amount owed from the employee’s last salary and any other payments, such as accrued annual leave, bonus, etc. Of course, section 34 of the Basic Conditions of Employment Act must be observed when making deductions from remuneration.

Secondly, the employer may sue the employee for damages in the civil courts. This is a protracted and costly process. It may even be throwing good money after bad, which may dissuade many an employer from pursuing it. Of course, if the employee has signed a proper acknowledgement of debt, which may be used to obtain judgment, the process may be simplified a little.

Thirdly, the employer may recover the money owed from the employee’s pension fund benefits. However, the deduction must comply with section 37D of the Pension Funds Act. If a debt is for damage caused by the employee’s “theft, dishonesty, fraud or misconduct”, the employer may ask the fund to deduct the amount of the debt and pay it over.

However, the employee must have admitted liability in writing; otherwise the employer would need to get a court judgment against the employee. Without the written acknowledgement of liability or a court judgment, it would be illegal to withhold the proceeds of the employee’s pension fund benefits.

To conclude, it would be ideal to make a clean break with departing employees. Alas, it is not always so, especially when the trust relationship has been completely destroyed. Managers are human, and they may feel the human urge to want to complicate the life of an employee who committed gross misconduct that resulted in loss to the employer.

So making deductions from remuneration or withholding pension payouts may not be beyond them, even if these acts are not strictly within the bounds of the law. However hard as it may be, these urges should be resisted. After all, one wrong does not cancel another or make it right. To be safe, any money to be recovered from an employee should be authorised by law.

Lesson: Ensure that all deductions made from an employee’s remuneration or pension benefits are permissible in law.

Information provided by Kaizer Moyane, Chief Consultant: Labour Relations

Copyright © Sanlam, 2016

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