Small businesses gain relief under Employment Equity Act amendments

After years of waiting, President Cyril Ramaphosa has set 1 January 2025 as the effective date for the long-anticipated amendments to the Employment Equity Act (EEA). With the clock ticking, attention is turning to how businesses will adapt and the broader impact on South Africa’s workforce.

On 14 April 2023, Ramaphosa signed the Employment Equity Amendment Act of 2022 into law, introducing sweeping changes to the EEA of 1998. The most debated of these changes is the introduction of sectoral targets (across 18 identified sectors) aimed at boosting the representation of designated groups – historically disadvantaged individuals based on race, gender, and disability – across all occupational levels.

According to CDH’s 2023 Employment Equity Amendments Guideline (fourth edition), the new section 15A ensures “the equitable representation of people from designated groups” through sector-specific numerical targets.

On 12 May 2023, the Department of Employment and Labour (DoEL) published the first draft of these five-year targets for public comment. They focused on top and senior management, professionally qualified and skilled levels, and people with disabilities, broken down by race (African, coloured, Indian, white) and gender (male, female), with national and provincial percentages. In this draft, “black” referred to African, coloured, and Indian individuals.

A second draft, published on 1 February 2024, removed provincial distinctions, keeping only national targets differentiated by gender. Although the core targets remained, there were minor adjustments in the finance and insurance sector.

Read: What employers need to know about the revised employment equity targets

The revised draft also consolidated racial categories under the term “designated groups”, defined as black people (African, coloured, Indian), women, and people with disabilities. It includes South African citizens by birth, descent, or naturalisation before 27 April 1994, or those previously excluded from citizenship under apartheid laws.

“The five-year sector targets are minimum targets which an employer is expected to achieve with a view to improving the equitable representation of people from the different designated groups at various occupational levels,” CDH explains.

Melissa Cogger, partner at Bowmans, notes that once the amendments are effective, the Minister of Employment and Labour will be empowered to identify sectors by notice in the Government Gazette, consult with stakeholders, and issue a draft notice for public comment before finalising sectoral targets.

However, at this stage, it is unclear whether the February 2024 draft will be final or whether further public consultation will be needed.

Smaller employers exempt from designated status

Kerry Fredericks, director at Werksmans Attorneys, highlights another key amendment to the EEA taking effect on 1 January 2025. Employers with fewer than 50 employees will no longer be classified as designated employers – unless they are municipalities, organs of state, or appointed through collective agreements – regardless of their annual turnover.

“Previously, employers with fewer than 50 employees but with annual turnovers exceeding a specific threshold in Schedule 4 of the EEA were considered designated employers. Consequently, Schedule 4 has been repealed,” says Fredericks.

According to CDH, this amendment relieves smaller employers of their affirmative action obligations, such as developing and implementing employment equity plans and submitting employment equity reports to DoEL.

“This will significantly relieve the administrative burden on these employers,” CDH adds.

However, smaller employers can still obtain a compliance certificate under section 53 of the Act if they meet specific criteria. Such a certificate is mandatory for concluding agreements with the state.

A certificate issued under section 53 remains valid for 12 months from the date of issue or until the next reporting date under section 21 of the EEA, whichever is longer.

Cogger points out that although the section detailing the criteria employers must meet to obtain a compliance certificate from the DoEL was introduced some time ago, it will only come into effect on 1 January 2025.

“In terms of section 53, ‘every employer’ – designated or non-designated – that makes an offer to conclude an agreement with any organ of state must provide a compliance certificate. Designated employers must comply with chapters II and III of the EEA, while non-designated employers must comply with Chapter II,” says Cogger.

To receive a compliance certificate, the minister must be satisfied that:

• The employer has met the sectoral numerical targets or provided a reasonable justification for non-compliance.
• The annual employment equity report has been submitted.
• There have been no findings of unfair discrimination by the Commission for Conciliation, Mediation or Arbitration (CCMA) or a court in the past 12 months.
• No CCMA award for failing to pay the national minimum wage has been issued in the past 12 months.

Fredericks warns that non-compliance with sectoral targets could preclude designated employers from doing business with the government unless they have a reasonable justification for non-compliance.

CDH states that these grounds are reflected in draft regulations published (but not finalised or implemented) in 2018. These include:

• Insufficient recruitment or promotion opportunities.
• Lack of qualified individuals from designated groups.
• CCMA awards or court orders.
• Business transfers, mergers, or acquisitions.
• Adverse economic circumstances affecting the business.

The February republished regulation states that employers with justifiable reasons for non-compliance will incur no penalties. However, CDH points out, “the republished regulation does not set out the detail of the manner and form in which an employer would be required to demonstrate the presence and impact of the listed justifiable grounds”.

How sectoral numerical targets will impact employment equity plans

According to CDH, an amendment to section 20 of the EEA now requires designated employers to set numerical targets in line with the applicable sectoral targets.

“An amendment to section 42 aligns the assessment of compliance with employment equity with the new requirements relating to sectoral numerical targets,” explains CDH.

Employers must develop annual numerical targets for all population groups in upper occupational levels where underrepresentation exists compared to the economically active population (EAP) of that group. If a racial or gender group already exceeds the sectoral target at a specific level, employers are prohibited from regressing and must aim to align with the relevant EAP.

When setting these annual targets, employers must consider:

• Their workforce profile.
• The five-year sectoral numerical targets.
• The applicable EAP, whether national or provincial.

The republished regulation clarifies that employers operating nationally must use the national EAP, while those operating within a specific province should use the provincial EAP. Employers cannot mix both national and provincial EAP demographics in their plans.

For businesses with operations across multiple provinces, the regulation offers some flexibility: they may choose the EAP of the province where most of their employees are based. However, this approach has raised concerns.

“Some concerns have been raised in relation to whether this approach to using the national or provincial EAP aligns with the EEA, as well as whether there is a general election for employers who operate in more than one province. There may be further guidance from the Department of Employment and Labour in due course,” CDH notes.

During the DoEL’s roadshows in September 2024, representatives informed attendees that a transitional period will apply to the sectoral targets.

While employers wait for the sectoral targets to be published in their final form, Cogger advises caution: “It would be premature to amend employment equity plans at this stage. Only once the final sectoral targets are published should designated employers consult employees or trade unions, conduct a workforce analysis, and prepare or amend their plans. After that, employers can report on their progress.”