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Employment Equity Amendment conundrum?

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According to the politicians, it will change and stay the same; it makes no sense whatsoever. In this article, I explore the new changes and how they will be implemented by the Department of Employment and Labour ("DeL"). As always, I'm brutally honest and call a spade a spade in the new Employment Equity Act 2.0.

Who must report!

According to the DeL, all companies must comply with the terms of the Employment Equity Act. As per the old Act, Employers are split between designated more than 49 employees and non-designate employers, less than 49 employees. In terms of EEA 2.0, designated employers must report annually. Non-designated employers do not have to report but must still comply with the Act to receive a compliance certificate.

The compliance of both revolves around minimum wage, harassment, discrimination and their industries, race, and gender targets. DeL refers to this as sector numerical targets and transformation targets; it's just a polished, politically correct word for quota. In reality, the government will tell organisations how many African, Indian, Coloured and Whites they are allowed to have if they want to get a Compliance Certificate. Check the definition of fascism.

Certificate of Compliance

One new introduction to EE 2.0 is the Certificate of Compliance. The Certificate of Compliance is DeL's new "magic stick", and it wields considerable power. Henceforth, this will become mandatory for all designated and non-designated organisations dealing with government suppliers and governmental entities. In future, without it, organisations will not be able to obtain specific licences, registrations, accreditations, get their BBBEE certificates, or deliver services to BBBEE clients. Despite what Bee and management consultants tell their clients, the Certificate of Compliance will influence all aspects of business. In future, the certificate will also become the most corruptible and fraudulent piece of paper in the coming years.

How it works.

When a large organisation submits its EE numbers and EEA2 and 4 reports online and if it complies with DEL's quotas according to the employment equity plan EEA13, it will receive a Certificate of Compliance. Smaller organisations that want to do business with large organisations or government entities will apply for it via the EEA15 form.

Once received, the onus is on the organisation to provide evidence and proof that it complies. DeL will require the organisation to provide this evidentiary proof using the EEA7 and Audit review assessments. Once the Compliance Certificate is issued, it automatically triggers an audit inspection from the IES (Inspection and Enforcement Services) under Adv Fikiswa Mncanca- Bede. An inspector will visit the company to verify the information.

If the organisation fails, the audit inspection DeL will revoke the Certificate of Compliance and publish the organisation's name in a special Government Gazette. This event triggers fraud and other charges by the Department of Labour and the Department of Trade and Industry under the Companies Act.

Infrastructure Update

While no one was looking, the DeL employed more than 1000 qualified attorneys as new EE inspectors over the last five years. A significant change is based on the monitoring infrastructure automation and focus on financial & demographic transformation targets. Gone are the days when organisations could type in their numbers with plain disregard. Like the SARS-VAT system, the new system will automatically flag non-compliant organisations for audits. All historical records, employee movements, salaries, promotions and appointments will now be stored online and actively monitored by the Department of Labour's intelligent system. (AI). All organisations are guilty until proven innocent.

Employment Equity Act Report 2 (EEA2)

For the 2023 submission, the organisation will input all employee data into the new 2.0 DeL system as normal. Per standard EEA2 reporting, companies must include the current employee complement numbers, promotions, termination and training. The organisation must also input its numerical targets, transformation progress, appointments, and promotions.

Once completed, the EE system will analyse the information and automatically verify and compare it against the industry targets and GIS. It will automatically calculate the organisation's sector quota it must achieve.

Another minor change not mentioned loudly is that if there is no formal skills development and training, then the EE system will automatically flag the organisation's succession and promotions.

This new Department of Labour system will require the organisation to "Make Transformation Progress", i.e. achieve the race and gender quotas provided by the Department of Labour on the Top, Senior, Middle and Junior management levels. The organisation will not be issued a Compliance Certificate if it does not comply with the quotas.

If this makes you wonder why punish the employer, let's dig deeper into this septic plan. When submitting the employee numbers, the EE system will only calculate the numeric quotas for the Top, Senior, Middle and Junior management. The skilled and unskilled majority of employees have been left out. It's almost as if the government is only trying to develop the Upper and Middle class and stuff the poor and lower class employees, you know, the people that really need the help. Isn't that interesting?

For example

On the old system, applying a very general averaging calculation to a theoretical organisation of, say, 100 employees means that each level (Top, Senior Management, Professionals, Skilled, Semi and Unskilled) in the organisation must have a ratio of 80.1% African, 2.6% Indian, 9.3% Coloured and 7.9% White with a 50/50 ratio of male to female and 2% disabled employees (% rounded).

In the new system, the sector industry percentages will apply. These may be as high as 80% for African Males and as Low as 0.2% for Coloured Males. It all depends on the industry and only the top four levels of the organisation.

Employment Equity Act Report 4 (EEA4)

The old EEA4 report required the organisation to submit all employees' remuneration; this was audited, and the organisation was notified of issues. The new system will calculate and flag all disparities immediately during submission, and the organisation will be automatically audited if the salaries supplied are below the minimum wage and where disparities exceed a yet-to-be-determined percentage. The organisation must be able to provide evidentiary proof to justify disparities.

According to the Department of Labour, justification can only be based on job grading and operational requirements linked to the employee performing the function. The new legislation places the burden of proof on management and is purely evidence-driven.

So, without a formal and in-depth job grading and analysis system, employment equity forums, unions, and management-signed organisation policies, the organisation has zero hope of proving itself innocent. It will be fined if the organisation cannot provide evidence to justify the disparities or any other non-compliance infringement. Remember, the organisation is guilty until proven innocent.

The skills development and training issue now comes into focus. Suppose the organisation does not provide training and development for staff. In that case, it will be penalised by way of a non-compliance certificate.

Apparently, the reasoning behind this is if the organisation does not comply but has a normal staff attrition, they should have appointed people of the right colour and gender. But if they did not, they should develop someone internally rather than trying to find the skill outside. Somehow, training and development costs are free, and one can walk into a university and pop out with a degree in a couple of days.

Employment Equity Plan (EEA12 and EEA13)

The employment equity plan is where the most changes took place. The new system will generate the quotas that the organisation must achieve to comply with the sector targets. This is a very fair system, according to the Department of Labour. The Department will provide the organisation with numerical targets regarding race and gender. The organisation must then provide the Department with its own numerical targets that it will achieve according to the Sector targets.

The system will then create a five-year transformation plan with targets the organisation must achieve annually. At this stage, it is unsure how and what is required to meet the targets and whether organisations will be forced to terminate employees who do not meet the quota. There is already a provision for such an event in the Code of Good Practice on the Integration of EE into HR Policies Section 21.3.1. and the EE Act.

The DeL system will now link the organisation to the industry's transformation goal numbers for 5 years, and the DeL system will then provide the organisation's annual transformation targets. The organisation must achieve the targets set by the DeL system. Failure to achieve the targets will cause the organisation non-compliant without a Certificate of Compliance.

So, it means that the organisation is forced to reach a number from the industry sector, i.e. 10 African females. If the organisation doesn't reach it, they are non-compliant. But to be fair and to make organisations feel better, they can select a company target number (which is not at all redundant) to achieve, but if the organisation doesn't reach the Government industry number, it's still non-compliant.

Non-Compliance Audit and Inspection.

To comply with the new legislation, the organisation must achieve its annual submission's numerical, remuneration and equality targets and objectives. If the organisation is flagged as non-compliant, the Department Labour system will automatically flag the organisation for a review audit and inspection. As the guilty party, the onus of proof is on management to break down every flagged item and provide and submit evidentiary proof of compliance to DeL.

Usually, management must email the company employment equity plan working documents, all relevant policies & procedures, signed agenda minutes, employee affidavits, and employment equity calculations to the Department of Labour Inspector. But on the new system, the Inspectors will do onsite visits and subject lower-level staff to a due diligence interview. An indoctrination session informing the employees of their rights, explaining and focussing on the remuneration disparities, company policies, and all the things the unfair organisation is doing to the suffering employees.

I have had the pleasure of experiencing this excellent process first-hand. The result is the same as putting vinegar into a glass of milk. In-goes a happy but nervous employee out, comes Che Guevarra, ready for a revolt.

Judge, Jury and Executioner.

Under the Act, failure to justify any infringement or disparity will be considered non-compliance, and the Dept Labour will issue a compliance order. Failure to rectify the infringement will result in the management being subpoenaed to appear in the Labour court, where they will be fined. The new fine structure will include a percentile turnover fine ranging from 2% to 10%.

Under the new EE 2.0, this also changed slightly. The penalty process could take up to three years in the past, but now it will be done at the drop of a hat because the DeL realised that the Labour court could not get to all the cases. The CCMA will now be the judge, jury and executioner dealing with EE certain contraventions. They can refer or fine an organisation if they can't prove their innocence.

Directors do not realise that, under Section 61 of the Act, the members of the employment equity committee and external consultants may be fined R30,000 per contravention if found guilty of aiding and abetting in fraudulent activities and dereliction of duty. I don't think staff are ready to take a hit on behalf of their bosses.

Circumvention, Fronting and Fraud.

Many organisations have been splitting into smaller entities to bypass the Employment Equity Act; however, this is fraud under Section 61, and those guilty will be identified and prosecuted.

As we could ascertain from discussions with the Department of Labour and SANAS, because of the link between the Department of Labour and other governmental entities like the registrar (CPIC), the actual company directors or shareholders of the organisation are linked to the organisation. The registrar automatically lists all legal entities under the person's ID number. Thus, the Department of Labour can access all organisations linked to the ID number of the director, shareholder, or owner.

Based on this list, the Department of Labour can do a litmus test on the independent group. If any or all of the following statements are true, then it's considered that the independent legal entities are operating as "one" organisation.

Check 1. 

The independent legal entities have the same shareholders and utilise the same address, premises, facilities, capital assets, tools, and equipment.

Check 2. 

The said legal entities use the same employees across the different legal entities where employees are managed, instructed, controlled, or directed in a manner in which an employee's work, performance and time are subject to a person from one or more of the said legal entities.

Check 3. 

The said legal entity employees operate in symbiosis and perform value-adding or ancillary tasks or functions, or they perform functions in a manner that assist in carrying on or conducting the operations to attain and or deliver a final product or service.

Check 4. 

The legal entities share or utilise the same administrative functions, like HR, accounting, suppliers, debtors, and creditors, and/or employee remuneration is divided between the organisations.

Based on this, the Department can ascertain that the "independent" organisations operate as a single organisation and are committing fraud by thwarting the Act.

Correcting the past at the cost of our future.

The Employment Equity Act has been eroded from its original intent of equality to a political power mechanism. As South Africans, we have learnt nothing from our past. We are at a point where we are approving a different version of the Population Registration Act (1950), which required South Africans to be racially classified into one of three categories: African, White, or Coloured (of mixed descent), Asian and other subgroups were added later.  

We are happily introducing measures to increase the development of one race at the cost of another. The new transformation and development legislation will be the legacy of this generation, and they will be judged by the next. I promise this legislation will come back to haunt this generation unless an alternative method of upliftment and development is found. We have to stop and consider the future consequences of our actions.

I want to remind you of a saying from King Saladin after conquering Jerusalem, "I warn you against shedding blood, indulging in it and making it a habit, for blood never sleeps, "We cannot continue on the path we have chosen; violence and hatred begets violence and hatred.

An alternative path.

We are at a point where we have the means to choose an alternative path. One that will allow organisations to benefit from compliance. Offering Government tenders and supply as a benefit and advantage is ludicrous. The government does not pay on time. They are corrupt and unethical, thus offering no commercial advantage, tenders going not to the lowest best bidder but to the highest bribe.

The alternative is more accessible if an organisation complies with all "realistic" commercial elements regarding equality, remuneration, work conditions and business practices. When I say realistic, I refer to multidimensional diversity. You can read more about that in my latest book, Profitable Employment Equity. When an organisation, irrespective of size, complies, then provides a tax benefit to the actual employees that work at the organisation, less hundred per cent (-100%) Tax, on PAYE, SDL or UIF. In addition, the organisation may receive a 50% VAT rebate while remaining compliant.

A lower employee tax will mean that employees employed by a compliant organisation get up to 48% more than non-compliant organisations. All senior executives will push the hell out of the organisation's leadership to comply so they can earn more. Lower-level employees will benefit directly and instead work where they can earn more, meaning that the non-compliant organisation has no choice but to become compliant to increase its competitiveness and profitability.

To the organisation, a discounted VAT rate will mean compliant organisations' profits increase by 7.5%, whilst non-compliant organisations don't. Using the zero-employee tax benefit and the VAT benefit will allow the organisation to attract better and more expensive employees. There is no single organisation in this country that will not do everything in its power to become compliant, and there is no racism or discrimination.

Now, some shoot this down even before I can finish the sentence. I was told that this would bankrupt and destroy the country and all kinds of nonsense. I'm betting on statistics and the seven deadly sins. Consider this: Not everyone can or wants to become compliant. Statistically, the majority of large and listed organisations can't change due to their organisation size, greed and ass-kissery, entrenched office politics and set-up. But small and medium organisations can change, so the real winners will be the lower and middle classes. Should we not focus on correcting this instead on who will win the next political corruption popularity contest.

We should at least try a different approach because what we tried does not work.


Stephan du Toit. (Advisor)

Is your organisation experiencing any employment equity challenges, received a compliance order or has been subpoenaed?

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