The following is the News flash 2022-37 published by the PAGSA regarding Employment Equity Miscellaneous Matters

EMPLOYMENT EQUITY – MISCELLANEOUS MATTERS

The Employment Equity authorities are currently engaging the public in roadshows around the country. Their schedule is included in the annexure to this Newsletter, and they have invited PAGSA members to attend.

Despite their busy schedule, they have assisted the PAGSA by updating us on progress and clarifying some areas of the Employment Equity requirements that are not clear.

Employment Equity Amendment Bill -Status
This long-running amendment Bill was issued as a draft Bill in Gazette No. 41922 on 21 September 2018.

The PAGSA commented on the proposed changes at that stage, and again when more changes were made to the Bill over the years, the latest of which was published in December 2021.

The final Bill has now been approved by the National Council of Provinces and the National Assembly on 17 May 2022 but must still be promulgated (signed by the State President) and given an effective date before its requirements can be implemented.

My understanding is that before an effective date can be announced, the new sectoral targets (see the next section) that have been under discussion for more than a year must be finalised (there are 18 financial sectors and only one of them had been finalised by September 2021).

It stands to reason that the portion of the Bill that provides for sectoral targets cannot be implemented until the sectoral targets are issued in a Gazette that allows 30 days for comments and once finalised, are then published in a regulation.

I assume that parts of the EEA2 will be revised and published for comments as part of the same process.

There is no indication of when these processes will be completed but it is obvious that they will take some time.

In my opinion, the most practical time to make these changes effective is from the start of October, the first day of the ‘Equity Year’ (the 12-month period that employers report on every year) for most employers, but there is no certainty on this.

This would mean that the earliest starting date would be 1 October 2023.

However, another factor is that there is a possibilty that the ‘Equity Year’ dates are revised (see the PAGSA proposal in the last section of this Newsflash).

If our proposal is accepted and the ‘Equity Year’ dates are standardised, it would then make sense to align the effective date of the amendments with the starting date of the new ‘Equity Year’ as specified.

Lastly, the PAGSA has made the Equity authorities aware that we need sufficient time in which to change payroll systems and to implement the changes at clients.

Employment Equity Amendment Bill -Proposed Changes
Refer to PAGSA Newsflash 2019-55 for the details of the draft Bill at that stage, but there are two proposed changes that are repeated here because they are important for payroll suppliers:
1. The definition of a ‘designated employer’
2. The introduction of sectoral numerical targets.
Keep in mind that these changes are included in the final Employment Equity Amendment Bill, but that the Bill has not yet been promulgated and made effective. As matters stand, the current law must still be complied with.

Change to the definition of a Designated Employer
All employers must comply with the ‘Unfair Discrimination’ requirements of Chapter II of the EE Act, but only ‘designated employers’ as defined by the EE Act must comply with the ‘Affirmative Action’ requirements of Chapter III.

In a significant change that will reduce red tape for ‘smaller’ employers in future, the definition of a “designated employer” will be amended by the deletion of paragraph (b) that currently includes as a designated employer: “a person who employs fewer than 50 employees but has a total annual turn-over that is equal to or above the applicable annual turn-over of a small business in terms of the Schedule 4 of this Act;”

Once promulgated, designated employers will be defined as follows –
(a) a person who employs 50 or more employees;
(b) a municipality, as referred to in Chapter 7 of the Constitution;
(c) an organ of state as defined in section 239 of the Constitution, but excluding the National Defence Force, the National Intelligence Agency and the South African Secret Service; and This means that once the changes are made effective that all employers with less than 50 employees will be excluded from Chapter III (‘Affirmative Action’) and will no longer have to submit an annual Equity plan.

Note that employers that in future will no longer be designated once the changes are made effective and that then do not have to comply with the ‘Affirmative Action’ requirements of Chapter III of the Employment Equity Act, must still comply with the ‘Unfair Discrimination’ requirements of Chapter II of the Act.

To obtain an Employment Equity Compliance Certificate for state tenders, all employers (both designated and notdesignated) must comply with the National Minimum Wage Act and with the ‘Unfair Discrimination’ requirements of Chapter II of the Employment Equity Act.

Designated employers must in addition submit annual employment equity plans and be seen to be making progress against the targets and goals specified in those plans to be eligible to be granted a Compliance Certificate.

Section 15A (Establishment of Sectoral Targets)
The purpose of introducing the sectoral numerical targets is to move away from the current general targets by focusing on targets tailored for the specific characteristics of each sector to achieve: “the equitable representation of suitably qualified people from designated groups at all occupational levels in the workforce by designated employers”.

Section 15A has been added to the EE Act to provide for numerical targets for any sector as follows: 4. The following section is hereby inserted after section 15 of the principal Act: “Determination of sectoral numerical targets 15A. (1) The Minister may, by notice in the Gazette, identify national economic sectors for the purposes of this Act, having regard to any relevant code contained in the Standard Industrial Classification of all Economic Activities published by Statistics South Africa.
(2) The Minister may, after consulting the relevant sectors and with the advice of the Commission, for the purpose of ensuring the equitable representation of suitably qualified people from designated groups at all occupational levels in the workforce, by notice in the Gazette set numerical targets for any national economic sector identified in terms of subsection (1). (3) A notice issued in terms of subsection (2) may set different numerical targets for different occupational levels, sub-sectors or regions within a sector or on the basis of any other relevant factor.
(4) A draft of any notice that the Minister proposes to issue in terms of subsection (1) or subsection (2) must be published in the Gazette, allowing interested parties at least 30 days to comment thereon.”.

As required by section 15A, the Minister of Employment and Labour will publish a notice in the Gazette identifying national economic sectors for the purposes of the Employment Equity Act, having regard to the code structure contained in the Standard Industrial Classification of all Economic Activities published by Statistics South Africa.

This notice may set different numerical targets for different occupational levels, or regions within a sector, or on the basis of any other relevant factor.

Application of the new Sectoral Targets in Practice
Prior to the release of the sectoral targets and being able to evaluate them, it appears that these targets are intended to be applied to the workforce profile (the EEA2). In response to my query the Equity Directorate confirmed this: “The Sector EE targets will only affect the composition of the workforce/ employees covered and reported in EEA2 Report – the EEA4 covers the remuneration paid to the employees/ workforce covered in the EEA2.

This means that once released, the new sectoral targets will influence the EEA2 Workforce Profile plans (the employer’s ‘headcount’ numbers). The results over the years will be measured against the employer’s EEA2 5-year plan and each year will be reflected in financial terms in the EEA4 tables.

The intention is that all current equity plans will fall away when the new requirements are made effective, and the new plans will have to be aligned with five-year targets.

At the moment there are more questions than answers on the practical aspects of the implementation of the new sectoral targets, so we have asked the equity authorities in advance to prepare a Guide to assist employers.

What are the Submission periods for the EEA2 and EEA4 Reports?
THE EEA2 STATES: WHEN SHOULD EMPLOYERS REPORT? Designated employers must submit their report annually on the first working day of October or by 15 January of the following year in the case of electronics reporting.
THE EEA4 STATES: WHEN SHOULDEMPLOYERS REPORT? Designated employers must submit their report annually at a Depaftment of Labour office on the first working day of October for immediate capturing or by 15 January of the following year for online reporting.

The highlighted word “on” is misleading – it should be “by”.
The concepts that follow are identified by abbreviated descriptions of concepts that are short and clear to assist clear communication. You won’t see these short terms in the legislation or the regulations, but the equity authorities are comfortable with their use.

The following concepts have been clarified recently:
1. ‘Equity Year’:
• Is the reporting year declared by the employer at the top of page 2 of the EEA2
• Is the 12-month period in which employee data is consolidated and analysed for submission of the EEA2 to the Equity Directorate
• Varies from employer to employer for historical reasons but in many cases, it is a year starting 1 October and ending 30 September of the following year.
2. ‘Equity Submission Period’:
• The period during which the EEA2 and EEA4 reports must be submitted by the employer
• This period opens on 1 September for both manual and online submissions, and
• Closes on 1 October for manual submissions, and
• Closes on 15 January of the following year for online submissions.
The Equity authorities agree that the submission period dates that are specified under the second point are correct.

Problems in Practice
The ‘Equity Year’ varies between employers for historical reasons, but it appears that many employers have an ‘Equity Year’ of 1 October to 30 September of the following year.
An ‘Equity Reporting Year’ of 1 October to 30 September of the following year, coupled to the manual submission dates that open on 1 September and close on 1 October, means that:
1. The employee data in the payroll in respect of September that is only finalised towards the end of September in the payroll means that on the opening date of 1 September the employee data in the payroll is incomplete and therefore inaccurate, and
2. If the employer waits until the end of September for the employee data to be complete and accurate, then there are at best only a couple of days in which to create the report and submit it manually before the closing date of 1 October.
My understanding is that if the employer’s ‘Equity Year’ is 1 November 2022 to 30 October 2023, the manual reports will then be submitted between 1 Sep 2024 and 1 Oct 2024 because they are too late for the 2023 reporting year.

Similar scenarios could be set up around the 15 January closing date. The other problem is that because employers have different ‘Equity Years’, the 12-month period reported on will include different periods of the year for different employers. As a result, the equity statistics for a year can be a ‘scrambled egg’ scenario resulting from different influences and events during the different 12-month periods.

The Covid hard lockdown period in 2020 is a classic example (hopefully not repeated).
The full Covid period fell into the ‘Equity Year’ for some employers, while only portions of the Covid period were included in other employer’s reports. The differences in the years being reported distorts the comparative statistical value of the equity reports for that year – apples are not being compared to apples.

PAGSA Proposal to Equity Directorate
Without going into too much detail, the PAGSA has submitted a proposal to the Equity authorities:
• To specify a single standard ‘Equity Year’ for all employers, and
• To align this ‘standard’ year with the tax year (1 March to 28 February).
The opening and closing dates for submissions could be the same as for tax certificates and the Return of Earnings for the Compensation Fund (1 April to 31 May) or alternatively the closing date could be extended by another month to give employers more time.

If this proposal is accepted by the Equity authorities, the earliest date of implementation would be 1 March 2023 (a more realistic effective date would be 1 March 2024), and ‘transition’ rules will have to be put in place to manage the change from the old equity year to the new ‘standard’ equity year if the dates are not the same.