Govt payroll deductions for microlenders ‘against the law’

Payroll deductions through which government employees’ loans with microlenders are repaid monthly are against the Labour Act, a finance ministry official says in a sworn statement filed at the Windhoek High Court.

This is said by the director of expenditure and financial management in the department of state accounts of the Ministry of Finance, Martinus Nakale, in an affidavit filed at the court on Thursday.

Nakale says in his statement that in terms of the Labour Act, employers are prohibited from making any deductions from employees’ remuneration unless the deduction is required or permitted in terms of a court order or any law, or the deduction is required or permitted under a collective agreement or arbitration award or is agreed in writing.

Payments currently being made to microlenders through the government’s payroll management system do not fall in the class of payments allowed in terms of the Labour Act, according to Nakale.

Nakale’s statement was filed in answer to an urgent application in which the microlending company Entrépo Finance is suing the minister of finance, the prime minister and various other parties in an attempt to stop a plan to discontinue the government’s payroll deductions management system.

Entrépo Finance filed an urgent application against the minister of finance and 36 other respondents in the Windhoek High Court on 30 September.

In the application, the company is asking the court to direct the finance minister not to interfere with the loading of new deductions on the Ministry of Finance’s payroll deductions management system, and also not to issue instructions that no new deductions may be loaded on the system.

Entrépo is also asking the court to authorise the continued operation of the payroll deductions management system with effect from 29 August, until an application to review finance minister Ericah Shafudah’s decision to discontinue the system from the end of November and to stop the loading of all new deductions on the system has been decided by the court.

The deduction codes that are being discontinued allow microlenders like Entrépo to have repayments of loans granted by them deducted directly from the salaries of government employees and paid to the lenders.

The discontinuation of deduction codes on the system is “irrational, irregular and reviewable”, and also unreasonable and disproportionate, Entrépo group chief executive Leonard Louw claims in a sworn statement filed at the court.

According to Louw, Entrépo, other holders of deduction codes, trade unions representing government employees, and public service staff members themselves were not given an opportunity to make representations to the finance minister before a decision to discontinue the payroll deductions management system was taken.

Nakale says current deductions loaded on the payroll deductions management system will continue after the end of November, when the finance ministry is set to take over the management of the system from the company Avril Payroll Deduction Management.

Nakale also says the finance ministry had been allowing new deductions that comply with legal requirements to be loaded on the system after an engagement with affected parties on 16 September.

A notice about the discontinuation of deduction codes through the current payroll deductions management system from the end of November made it clear that deductions from government employees’ salaries for the repayment of current loans loaded on the system would continue until the loans have been paid off, Nakale says.

According to Nakale, the orders that Entrépo wants the court to make would not be lawful, as current deductions for the repayment of loans given by microlenders do not comply with the Labour Act and with standards published in 2020 in terms of the Microlending Act of 2018.

Nakale further says that in terms of the published standards, a microlender is prohibited from lending money to anyone if the repayment of the loan would exceed 50% of the borrower’s monthly discretionary income.

Monthly discretionary income is defined as the borrower’s total gross income, minus tax and other deductions effected by an employer as a condition of employment, minus deductions ordered by a court, minus other financial obligations of the borrower, and minus the total costs of basic necessities of life.

The hearing of Entrépo’s urgent application was scheduled to take place on Friday last week. However, the hearing was postponed to 18 November, with the parties involved in the case to file further affidavits with the court before then.

Senior counsel Raymond Heathcote and Ramon Maasdorp, instructed by the law firm Ellis and Partners, are representing Entrépo.

Legal counsel Gerson Narib and Tinashe Chibwana, instructed by the government attorney’s office, are representing the finance minister.

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