The YES Initiative has been Gazetted

The YES Initiative has finally been gazetted! Although gazetted a few weeks ago already, we wanted to wait for feedback from the dti’s briefing session held on the 10th of September, so we could include answers to our questions in our communication with our clients on this initiative. However, it seems the dti is not sure about answering these questions yet and we are told we should wait until the interpretive guide is issued. The YES website is also lacking in information and while companies can sign up and indicate their “interest” in “getting involved”, there doesn’t yet seem to be a defined or visible process for implementing the YES initiative. And since companies implementing YES are obliged to pay a registration fee (up to R20,000), pay a R5,000 fee per YES youth as well as additional fees if wanting YES to source the youth and/or place them into QSEs or EMEs, this is a little frustrating, particularly for clients of ours with December year ends where the clock is ticking.

Recap: for an introduction into what the YES initiative is, please see our previous article here.

Back to the gazette: It is a stand alone gazette, with none of the other amendments, some of which are quite controversial, included. Presumably, this makes it easier to incorporate these requirements into each of the Sector Codes, which we expect to happen, otherwise the goal of assisting 1 million youth across the entire economy will be impacted.

The rules and requirements are largely as initially published in the draft gazette, and covered in our original article, with the most notable amendment being the removal of compliance with a new indicator for bursaries and scholarships on the Skills Development element.

The general implications of the introduction of the YES initiative are:

  • EMEs, QSEs and generics can all enhance their levels by up to 2 levels, if they meet the eligibility criteria and the targets set for work experience and job absorption
  • The eligibility criteria are focused on meeting the sub minimums for each priority element (differently defined for QSEs and generics) or meeting an overall 50% average across the priority elements (40% for QSEs). This means that companies can potentially avoid ownership altogether and still get bumped up a level from where they would be before a level drop due to not meeting the Ownership sub-minimum, but they would have to score very well on Skills and/or Enterprise and Supplier Development, depending on if they are generics or QSEs. This puts some entities without any Ownership within range of a Level 5, compared with the current likely best case scenario of Level 7. Although Level 8 is most common.
  • In addition, QSEs and generics are obliged to at least maintain their level of BEE compliance from the year preceding the introduction of the YES initiative in order to qualify. This requirement is before any level enhancement provided through YES, meaning companies can’t slack off and reduce their spend levels from previous years.
  • EMEs have no eligibility criteria, so can potentially achieve Level 2 annually if meeting the YES targets
  • The headcount targets for providing work experience through fixed term or temporary 12 month contracts (termed “new jobs” which must be in addition to the existing jobs at the Measured Entity) are calculated against the company’s previous year’s headcount, its Net Profit After Tax (average over 3 years) or its revenue, depending on which is the highest number
  • In the case of QSEs and EMEs, the targets are based on headcount only
    If work experience positions (Yes jobs) cannot be accommodated by the company, these can be sponsored for other EMEs and QSEs, therefore, if QSEs and EMEs are willing to put in the time required to truly develop entry-level resources, they could get free or partly subsidised resources. We do, however, wonder whether it would be more attractive to companies to enhance their own BEE levels than accept free intern resources.
  • “Absorption” is unclear although it appears to be a renewal of a fixed term contract or a permanent employment contract. The absorption requirement is surprisingly low at 2.5-5%, although this percentage is misleading except for only the largest companies. For example, companies with a turnover of R400m can reasonably expect to have a target of 20 work experience positions, of which 1 needs to be absorbed to reach the 5% target. The QSE or EME with less than 20 employees (which is probably a large percentage of such businesses) needs only 1 work experience position, but since you can’t absorb a fraction of a person, their absorption target becomes 100%. Realistically, therefore, the absorption target for companies with a turnover less than R400m is likely to be considerably higher than 5%, which may be unsustainable year-on-year.

The gazette of the YES initiative still raises a number of questions:

  • The earliest companies can get points for this is in just over 1 year’s time, since absorption is required – although in a recent YES brochure, it states that absorption is ignored for Year 1, implying that as long as YES is implemented before the Measured Entity’s year end, the Level benefit could be awarded. This is an absolutely critical point and not currently referenced anywhere in the Gazette. We hope the interpretive guide sufficiently addresses this.
  • What happens if one or more youth are fired, resign or otherwise drop out of the programme before the 12 months have expired? Is the requirement to provide 12 months work experience to a target number of youth or provide the opportunity for 12 months work experience to a targeted number of youth? The likelihood of all youth finishing the programme is low and the behavioural challenges potentially created by not being able to fire these individuals for certain behaviours are concerning.
  • The Gazette states that “alternatively, Generic entities must achieve an average of 50% across the three priority elements utilising principles relating to sub minimums (and similar applying to QSEs).
  • Understanding the technical calculations here requires us to understand whether bonus points can be included in the calculations of percentages, and whether the average sub minimums are based on the averaging of points or the averaging of percentages by element, which gives a (probably more appropriate) non-weighted average result.
  • YES Measured Entities must ensure that they maintain or improve the BBBEE Status Level and performance against the Targets under the overall Scorecard obtained in the prior year before participating in the
  • YES initiative, however, the words “and performance against the Targets under the overall Scorecard” are also included, creating ambiguity on what exactly needs to be measured.
  • YES Measured Entities are required to sign fixed term or temporary employment contracts with all eligible employees filling new positions within their Entity. These new positions must have a 12-month fulltime work experience paid for by the Entity. It remains unclear how large a percentage of time can therefore be dedicated to skills development, and whether only informal skills development counts or if formal skills development is optional.
  • Where YES Measured Entities are unable to create a sufficient number of new jobs within the entity to meet their targets, they may sponsor new jobs to be placed in EMEs or QSEs. There still seems to be a concern that this excludes NGOs, however, NGOs can also be EMEs or QSEs, so we do not believe there needs to be any concern here.
  • It does not seem that the youth need to necessarily have been “previously unemployed”, rather, it is the position that must be new. While the objective is obviously to create employment and work experience for unemployed youth, we mustn’t forget that learnership contracts of 1 year are technically employment, even if temporary, and graduate learners could be getting their first real work experience through a programme like this.
  • Informal Skills Development expenditure for YES employees will be recognised during the Verification Process of the Skills Development element under Amended Code Series 300, Statement 300. Y.E.S Measured Entities will be able to claim up to 50% of their Skills Development Spend as Informal Training (Category F and G of the Skills Development Matrix) against the Skills Development Scorecard. This has some implications and raises some questions:
    – The stipend to the YES youth will not count as Skills Development spend. This is the cost of the Level change.
    – Any training given to the YES youth will count since this is optional and over and above the level change (although the question of whether it can be formal remains)
    – The way the Gazette it written, it seems Measured Entities can claim up to 50% of their Skills spend as informal – irrespective of whether the informal training is for youth or not. This may or may not be the intention but certainly is the most literal interpretation of the wording of the new law. If applicable, this represents a significant opportunity for companies that spend a lot of time and money on genuine, but unaccredited, skills development and training.

Click here for a summary of the detailed technical requirements:

  • Qualification criteria
    • Achieving subminimums
      • Generics need to
        • Meet all the 40% sub minimums OR
        • Meet an average of 50% (not 40%) across Ownership, Skills, Procurement+ESD
      • QSEs need to
        • Meet 40% Ownership sub minimum and 1 other 40% sub minimum across Skills or Procurement+ESD OR
        • Meet an average of 40% across Ownership and Skills or Procurement+ESD
      • EMEs have no qualification criteria
    • Maintain Levels
      • Generic and QSE entities must maintain or improve their Level and performance against the targets (not sure what “performance against the targets” means)
  • YES initiative Calculations
    • Generics need to calculate the higher of
      • Last year’s headcount x 1.5%
      • The average NPAT from the last 3 years x 1.5% / 55,000
      • The target corresponding to their revenue (unclear if it is current or previous year; assumed to be previous year in line with headcount and NPAT)
    • QSEs
      • The target corresponding to their headcount (unclear if it is current or previous year; assumed to be previous year in line with Generic headcount)
  • YES initiative beneficiary requirements
    • Beneficiaries are “eligible employees” who are
      • Youth (18-35)
      • Black people as defined in the Codes
    • Employed in newly created positions on fixed term or temporary contracts that comply with SA employment legislation
    • Positions must be 12 month fulltime work experience paid by the Measured Entity
    • Positions can be sponsored into QSEs and EMEs if the Measured Entity cannot accommodate some/all the YES beneficiaries within their own organisation
  • BEE recognition
    • Skills Development
      • Informal skills development expenses for YES beneficiaries counts towards Skills spend
      • Measured Entities implementing YES can claim as much as 50% of their Skills spend targets on informal training (Cat F and G)
    • Level benefits
      • YES target + 2.5% absorption = 1 BEE level
      • YES target x 1.5 + 5% absorption = 1 BEE level + 3 bonus points
      • YES target x 2 + 5% absorption = 2 BEE levels

Written By:

alana_1348763442Alana Bond

alana.bond@simanye.co.za

B. Bus. Sci. (Hons) Finance and Accounting from the University of Cape Town

Co-founder and Director of Simanye and a Trustee of The Simanye Trust