Grappling to understand the Codes of Good Practice!



In the heady early days of 2006 while helping an organisation formulate its response to Department of Trade and Industry (dti) on the skills development component of the proposed broad-based black economic empowerment codes of good practice, I felt the terms and provisions were unnecessarily complex.

I argued that Business South Africa had balked at the National Skills Development Strategy (NSDS) because of the perception that benefits were eclipsed by the hassles of compliance and that the same would probably happen with the BBBEE codes. The result would be that companies would either do the bare minimum to comply with the codes or ignore them completely.

Far better, I thought, to have a simply constructed code while business got to grips with the concept and processes, adding fiddly bits later if necessary.

Then, at the recent Chemical Industries Seta (Chieta) regional conference in KwaZulu-Natal, Vuyo Jack of BBBEE ratings agency Empowerdex revealed the codes had become even more complicated.

Thank heavens, then, for last week?s report that the cabinet had called on the dti to simplify the codes to make them less intimidating.

Forget simplifying the skills development element, the dti might need to start virtually from scratch because the proposed code appears to be fundamentally flawed in terms of who is exempted from the requirements of good practice and who is not.

According to the dti, an enterprise qualifies for BBBEE compliance exemption if it has an annual turnover of less than R300 000.00. The department calls these businesses "exempted micro-enterprises'.

The next step up the ladder is the "qualifying small enterprise (QSE)' which has a maximum turnover threshold that is determined by the economic sector in which the company operates and ranges from R2 million to R15 million a year. (Just to make things more complicated, the number of people employed by the company is another criterion for qualifying as a QSE.)

According to the dti, for a qualifying small enterprise to score maximum points on the BBEEE scorecard, it needs to:

? Submit an application to the National Skills Fund (five points out of a possible 20).

? Demonstrate "quantifiable skills development on black employees in addition to the skills development levy as a percentage of the leviable amount' (the remaining 15 points).

However, the Skills Development Levies Act not only exempts but specifically forbids enterprises with a payroll of less than R500 000.00 a year from contributing financially to sector education and training authority (Seta) activities.

So what happens to those companies that fall between the dti?s exemption threshold (based on the VAT registration limit as per the Value Added Tax Act) and that of the Department of Labour (as per the Skills Development Levies Act)?

There are many, many thousands of companies that would be regarded as a qualifying small enterprise but are not paying skills development levies.

Unless the basis of exemption / participation is brought into alignment, skills development and broad-based black economic empowerment is going to degenerate into chaos.

The proposed codes take the last requirement a step further... they specify that the company participate not only in skills programmes but in learnerships.

This left Chieta acting chief executive Derek Peo somewhat aghast. He could just see hundreds of small companies, all of whom had paid not a single penny to the body, applying for discretionary grants (at an average of R35 000.00 a learnership) in the hope of winning tenders for government business.

His Seta, and every other one where there is a preponderance of non-levy-paying companies in the sector, could be bankrupted if the codes go ahead as planned.

And who is going to raise the greatest hullabaloo: the owners of the global conglomerate that pays millions of Rands in skills development levies each year or entrepreneurs who feel they are being excluded from empowerment and growth opportunities?

The former could claim that they are subsidising their competitors - resurrecting the argument that the skills development levy is nothing more than a tax - with fears that there will be nothing left in the Seta kitty when they apply for learnerships of their own.

On the other hand, the little guys who are refused learners on the grounds they are not paying levies can point to success indicator 2.5 of the revised NSDS which calls on Setas to increase the number of small black economic empowerment firms and co-operatives supported by skills development. They could argue that the Seta?s failure to allocate learnerships or provide free accredited training could be a violation.

Perhaps it is the dti?s language rather than its thinking that is woolly.
There are two ways of understanding the criterion "quantifiable skills development on black employees in addition to the skills development levy as a percentage of the leviable amount'.

The first is outlined above. There is a very different interpretation, however, if the sentence is amended to "quantifiable skills development on black employees in addition to the skills development levy as a percentage of the leviable amount, if the enterprise had been required to pay the levy'.

Thus, should a company with a turnover of more than R300 000.00 but a wage bill of less than R500 000.00 wish to have its contribution to BBBEE measured favourably, it would have to spend the same amount and more as what it would have paid in skills development levies on training black employees.

Whether one reads the qualifying requirement as po-tay-toes or po-tah-toes, clarity is desperately needed.

As for submitting applications to the National Skills Fund, maybe it?s a good thing that implementation of the codes of good practice continues to be delayed!