Compensation letter of good standing delays work

Letter of good standing delays are due to Department of Labour IT capacity problems, and some to defaulting sub-contractors.

A letter of good standing declares that the employer’s payments to the Compensation Fund or FEM, the statutory construction sector insurer, are up to date. Employers should not hire uninsured contractors, or workers who are not included in their insurance according to the COID Act.

The Compensation Commissioner does not issue letters of good standing while there are outstanding returns, either not submitted, or not assessed. A backlog had developed, aggravated by some contractors who delay their compensation returns or applications.

Buildsafe South Africa members responded to a query about Compensation Fund delays and Unemployment Insurance Fund UIF delays, with a range of answers.

COID Act requires compensation insurance

The Compensation for Occupational Injuries and Diseases (COID) Act section 89 provides that when a mandatory hires a contractor, the contractor has to register as an employer and pay the relevant assessments.

If the contractor fails in this duty, these workers are deemed employers of the mandatory, who then has to pay the assessments for them, which he may recover from the contractor, writes a Buildsafe SA member.

However, the Labour Department may recover compensation from the contractor instead, and make up any shortfall by recovery from the other. A mandatory is not liable in this regard for an incident on another site.

Construction Regulations require compensation

Construction Regulation 4(g) provides that principal contractors have to be registered and paid up with the Compensation Fund or a licensed insurer prior to starting work on site.

“To avoid problems and a load of admin, rather do not allow a contractor to work under your Compensation insurance,” writes a Buildsafe SA member. Contractors based in other countries could be covered by the mandatory’s insurance.

Compensation assessment online not working

The Compensation Fund is falling behind despite a website function to allow employers to do their assessments and annual returns online, while generating a letter of good standing. This facility is not functioning fully. Telephones and faxes go unanswered. Some contractors visit the Compensation Commissioner’s office to get their letter of good standing in Pretoria and wait it out.

Meanwhile the Department of Labour is ending ICT contracts with Siemens and EOH, and its information technology capacity is described as a “dilemma” by officials. PWC was appointed to run the DOL procurement system and new tenders will go out by mid 2013.

“Most subcontractors are not submitting their returns online at, they owe money and don’t want to pay. Ask for a reference number for their compensation, usually starting with a 9, or company registration number, visit a Labour office and ask for a printout of the statement. They will tell you why it is delayed,” writes a Buildsafe SA member.

letter of good standing
Compensation Letters of good standing delays due to IT problems.

“If you notify the Commissioner of the number of employees you are adding, and get assessed again and pay the difference, and give them your company contracts for the duration of the contract, it could work, but it could cost you a lot.”

“As long as you have proof that your assessment is up to date and that you have applied for a letter of good standing, most employers would accept this,” wrote a Buildsafe member.

Contractors with insurance approved by the Compensation Commissioner, could allow sub-contractors to work as their own employees. Thus contractors become insured under the COID Act measures of the employer, until their own compensation measures are valid.

Letter of good standing falsified

There are allegations of fraudulent and falsified compensation letters of good standing. Some employers ask contractors for proof of payment to the Compensation Fund, check the dates, and verify payments with the Labour Department.

The COID Act allows subcontractors to claim under the main contract, should they not be registered or if their registration is lapsed. However, if you claim, they will load your premium if you claim over a certain amount.

“In the transport industry, we had a number of lost time injuries and a fatality in one year, and our repayments went sky high. By managing our safety system and reducing injuries, we brought the premium back down,” wrote a Buildsafe SA member.

Some employers get a temporary letter of good standing, valid for a month, renewable every month until you receive the letter of good standing.

Compensation Fund and Federated Employers’ Mutual Assurance option

“I recommend contractors to change to Federated Employers’ Mutual Assurance, which issues letters of good standing to their members for a year, not monthly,” wrote a Buildsafe SA member. FEM is accredited with DOL and the Compensation Commissioner.

“FEM admin is efficient. However, employers have to be in good standing with the Compensation Fund before FEM would accept you.”

Another construction employer wrote that blanket or umbrella coverage by the principal employer, should be described in the contract, including the underwriters and taking into account the risk profile of each company and job.

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