The Skills Change that is rippling through the B-BBEE industry

A recent “clarification” announced by the South African National Accreditation System (SANAS) has confirmed a change to the denominator for the five Skills absorption points that have many transformation teams scrambling to maintain their B-BBEE compliance at a time when many are simply trying to stay afloat in the economic havoc wreaked by Covid-19.

In a recent email chain, SANAS, the regulatory body that ensures B-BBEE verification agencies follow protocol, communicated a clarification note pertinent to the Skills Development element. The clarification was applicable to a calculation on the five point bonus  indicator on the Skills Development scorecard.

How we got here

Black Economic Empowerment (BEE) was reformed in 2007 to include broad based elements, thereby birthing the somewhat lengthy title of Broad Based Black Economic Empowerment (B-BBEE).

Skills Development was a notable addition to the broad-based elements, as it centres around the upskilling of black people. The element was later amended to include “absorption” bonus points awarded to companies for securing formal permanent or long-term contract employment for learners, or to assist the learners proceed with further education and training.

This highlighted the element further as there was now not only a focus on training and skilling black people but also an attempt to reduce unemployment rates within the South African economy as part of the process.

Skills development is one of the tougher elements to score well on, because it has a large financial implication on businesses. The ability to score well on this scorecard is closely linked to spending a percentage of a company’s Leviable Amount on well-structured learning programmes. Billions of Rands are spent every year in training and development which is a great transformational step, but hard on any businesses straddling the line of financial success. For this reason many companies were delighted at the inclusion of the bonus points indicator and reacted quickly by implementing training programmes aimed at achieving these bonus points because it presented a controllable opportunity in the Skills development scorecard.

Unfortunately however, as opportunity presents itself, so too does exploitation and some companies were finding loop holes around technically meeting the absorption definition and therefore achieving these points while seemingly forgetting the intention for its introduction into the skills scorecard in the first place.

In order to score the full five bonus points, companies would need to absorb 100% of the unemployed black learners that have completed the learning programme. So, companies discovered that if they put a single person on a learning programme and then employed that person at the end of the programme, they could achieve the full bonus points weighted for  that indicator.

Another example would be having a single learner move from one qualifying learning programme to another at the end of the first learning programme and claiming the full bonus points. While continuous training may be argued as a positive, the counter would be holding that learner back from employed in the job market. Five points on a B-BBEE scorecard could have a massive impact, and the industry was seeing more and more technical loop holes finding their way to the surface.

Regulators push back

In May last year, the B-BBEE codes were amended further and the definition of absorption was changed to securing long term contract employment for learners only. While this change abolished many of the existing loop holes, it didn’t eradicate all of them. It could be for this reason that the Accreditation manager at SANAS issued a clarification on the matter. This email confirmed that the absorption must be measured against all employees and not only those learners that are unemployed and have completed learning programmes.

This is seen by many as a harsh decision as companies will no longer be able to earn the full bonus points unless they secure long term permanent employment for 5% of their total headcount as opposed to the unemployed learners that have completed their learning programmes. So if a company has 100 employees, they will now need to ensure that at least 5 of those learners must be black, fixed-term or unemployed, completed the programme and were offered permanent employment at the end of that measurement cycle.

The higher the total number of employees, the higher the number of learners you will have to absorb, so for larger organisations who have a considerable staff complement, this will not be an easy feat. The SANAS email was sent out in the first week in April 2020 and was made applicable with immediate effect. This makes it even more difficult as companies will not even have a transition period to build up and put measures in place to achieve these higher targets.

There have been murmurs in the industry querying whether the SANAS emailer depicts the correct calculation applicable to the bonus points indicator. However the verification agencies have been verbally told by SANAS that they will receive a non-conformance should they not agree with the calculation as described.

SANAS does not have the authority to make interpretative clarifications on the B-BBEE codes as gazetted by the Department of Trade and Industry (DTI) as they serve as the regulatory board to Verifications Agencies. However, when questioned about this, the accreditation manager further confirmed that the calculation clarification was indeed discussed and approved by the DTI.

And just like that, thousands of companies will need to adjust and adapt to ensure that they still perform well even with the recent change to the skills development scorecard and ultimately the overall B-BBEE scorecard. 

It’s important to proactively manage your B-BEE scorecard in an ever changing B-BBEE industry. Companies need to have tools at their disposal to assess the impact of these changes on current strategies as it is necessary for businesses to react quickly in order to always stay ahead of the changes and maintain or improve their B-BBEE levels.

Written by: Mitishka Ramdhani