“Changes proposed to South Africa’s Basic Conditions of Employment Act (BCEA), Labour Relations Act (LRA) and Employment Equity Amendment Bill (EEAB) will have a significant impact on how employers conduct their business in 2013,” says Cooper.

 

“In the draft Employment Equity Amendment Bill (EEAB), specific attention should be paid to the concept of equal pay for work of equal value, which can result in a new form of unfair discrimination.”

 

Cooper explains: “In cases where employment conditions, including remuneration, are applied differently to employees who do the same or similar work, then the employer must be able to show that the differences are based on fair criteria such as experience, skills, responsibility and qualifications. If the employer cannot do this, the differentiation would constitute unfair discrimination.”

 

“In practice it would mean that if a company employed factory workers on a permanent basis and at times of high demand took on additional workers from a labour broker and they worked side by side doing the same job, then both permanent and labour broker-supplied workers must be paid at the same rate,” says Cooper.

 

“Because the employer must pay the labour broker his fee on top of the wages for the workers, the result will be that brokered labour will cost more than permanent labour. This is logical and the premium that the employer must pay for flexibility.”

 

“Importantly, the intention is to align the Employment Equity Act with other general labour laws that need to be applied in cases where an individual supplied to a client by a labour broker is seen as an employee of that client.  One can only assume at this early stage that these employees, supplied by the labour broker, will have to be included in the client’s equity plan as well as in the labour broker’s equity plan.”

 

“The draft Employment Equity Act further changes the way in which companies implement affirmative action. According to Cooper, the groups of people who benefit from the affirmative action provisions will be limited to those who were South African citizens before democracy (April 1994) or to those who were prevented by the policies of apartheid from becoming citizens before 1994, and their descendants. This means that the employment of foreign nationals or those who became citizens after the democratic era (April 1994), will not assist employers to meet their affirmative action targets.”

 

Employment Services Bill

According to Cooper, the Employment Services Bill is another very important piece of legislation for employers to be aware of as it moves towards finalisation.

 

“The overall intention of this brand new piece of legislation is to empower the Department of Labour to provide a comprehensive range of employment services (free of charge) to members of the public in an attempt to achieve the Government’s objectives of: more jobs, decent work and sustainable livelihoods.  Any initiative that reduces unemployment is to be welcomed,” says Cooper.

 

The Government is aiming at making employment services open and accessible to all. This includes the following:

 

1. Registering work vacancies and seekers, matching resulting opportunities, and facilitating the placement of seekers with employers or other work opportunities.

 

2. Provision of advisory services for training, social security benefits, dealing with vulnerability, vocational and career counselling, assessment of work seekers to determine suitability, and improving work-related life skills.

 

UIF (Unemployment Insurance Fund) legislation

“Changes to the UIF legislation have been pending for quite some time and will hopefully move through Parliament towards the end of this year.  Broadly, the proposed changes envisage increasing the value of the UIF benefit, as well as extending the grace period during which benefits can be claimed, from 6 to 18 months,” says Cooper.

He says there is also an intention to remove certain exclusionsof which there are no details but hopes that this will include the exclusion of commission from the remuneration on which the contribution is calculated, which results in commission being excluded from the value of the contribution and the benefit.  Unemployed people, who were earning a low basic salary plus commission, are negatively affected by a benefit that is in line with only their basic salary.

 

Cooper is encouraging employers to attend Sage VIP’s Payroll and Tax Seminar in March and April 2013. “The seminar is regarded by many as a definitive guide to the changes in payroll and tax legislation and we endeavour to present it in a practical and interactive manner that does not focus on the legal aspects alone. The presentation will also aim at communicating future trends that will impact payroll and HR,” said Cooper.

With the 2013 budget speech fast approaching, the South African Institute of Chartered Accountants (SAICA) calls for the Minister of finance, Mr Pravin Gordhan, to review certain provisions related to the Value-added Tax Act, No 89 of 1991 (“the VAT Act”) pertaining to companies that have already implemented business rescue proceedings.

The dawn of 2013 brings a number of legislative changes that are looming on the horizon.  This is according to Rob Cooper, Director of Legislation Updates and Proposed legislation at Softline VIP, part of the Sage Group plc. 

 

Proposed changes to the South African Labour Relations Act (LRA) and the Basic Conditions of Employment Act (BCEA) are on the cards for 2013 in the wake of massive protest action that has crippled the country.  “Some of the proposed changes include the fact that minimum wages can be prescribed by the Minister of Labour.  Public officials are also proposed to have the power to prohibit strikes in their sectors.  It is also proposed that Unions must ballot and get majority agreement to strike or picket, but there is strong opposition from Cosatu who see this as a curtailment of their freedom to strike and one wonders whether this will be in the final legislation” says Cooper.

 

Fortunately, the debate whether labour brokers should be closed down or regulated, seems to have gone the way of stricter regulation.  A decision has however been passed that ‘Atypical’ employees become ‘Deemed’ employees after six months.  The upheaval in the industry has seen the number of labour brokers dramatically reduced from 3,234 in 2010 to 2,685 in 2011.

 

“These proposals have been pushed through Nedlac, despite labour and business differences.  Parliament’s labour portfolio committee is to finalise last ‘discussions’ with amendments to the respective bills having been published on 22 October 2012.  The effective date is yet to be announced,” explains Cooper.

 

Employment Equity Act proposals were recently released by Nedlac that will see the act continuing to focus on provincial targets instead of national demographic targets.  “Increased fines and powers are proposed in addition to the introduction of the concept of equal pay for work of equal value.  These proposals could quite possibly be rolled out in conjunction with the BCEA and LRA amendments,” says Cooper.

 

South Africa has a Total of 19,5 million unemployed people, of whom 4,5 million are ‘officially’ unemployed in addition to 60% not having a matric.  Of the youth under the age of 25, around 50% are unemployed.  Unfortunately the Youth Subsidy, which had reached a fairly advanced stage, was given the political boot at the ANC’s June policy conference, to be replaced by a ‘Job seeker Grant’, of which there are no details available.  It is expected that more information will be released at the Mangaung elective conference.

 

“Tax Relief for Medical Expenses is expected to change in either March 2013 or March 2014, from a deduction calculation to a ‘Medical Tax Credit’ method of calculation,” says Cooper. “Contribution expenses for all taxpayers are to be defined, while an assessment method to calculate the tax relief on total medical expenses is to be tabled.  These proposals will result in a gradual reduction of the value of our current tax relief which has been the trend over the past two years.”

 

The National Health Insurance project is set to be a fourteen year project of which the total cost is still being debated.  “The Budget 2012 funding options were to increase the VAT rate; or to increase the surcharge on taxable income; or to introduce a payroll tax contribution.  Thus far the Medium Term Budget Policy Statement remained silent on the subject, though a Treasury discussion document is expected soon,” says Cooper.

 

There will be a major move towards the standardisation of retirement funds and there are many reasons for the proposed changes.  “The poor performance by some private retirement funds is a major catalyst as is the prevailing low retirement savings level in the country.  Also the tax and administration rules around retirement funds are simply too complex,” explains Cooper.

 

The purpose of the change is to ensure that all retirement funds have the same administration and tax rules.  “The intention is to utilise the tax and administration rules that are applicable to retirement annuities and to replicate it for retirement funds.  There are many ‘vested interests’ to be protected and it will only be applicable to South African residents.  The roll-out is tentatively planned for March 2014,” says Cooper.

 

Proposals for a National Retirement Fund have also been tabled, which will take the form of a mandatory statutory fund that provides pension, life insurance and disability benefits.  The fund is to be phased in over the next four years and will place pressure on the private sector retirement funds.

 

Proposed changes to the Unemployment Insurance Act will affect ‘Credit days’ which is proposed to be calculated as one calendar day for every four calendar days employed.  “The proposal will also see an increase in the income replacement rate and may remove certain exclusions or limitations in the Act,” says Cooper.

 

The introduction of the virtual UIF office system allows individuals to apply for UIF benefits electronically.  “It effectively eliminates the need to queue at the labour office, reduces the cost of ‘accessing’ the benefit and reduces the benefit approval time from about four weeks to 48 hours,” explains Cooper.

 

“These are just some of the changes lined up for 2013 and we will continue the discussion as we near the budget speech in the New Year,” concludes Cooper.

1 May 2013 is deadline to update details free of charge

The deadline of 1 May 2013 for incorporated companies to amend their set of articles of association and memorandum of association (articles and memorandum) to a Memorandum Of Incorporation (MOI) free of charge is fast approaching and companies are only left with six months to ensure they meet the deadline.

 

Juanita Steenekamp, Project Director: Governance at the South African Institute of Chartered Accountants (SAICA), confirms that the Companies Act, 2008 (the Act) which became effective on 1 May 2011 introduced a number of changes to the South African business landscape. “One of the most significant changes is that the requirements for incorporated companies were amended and what were previously known as the articles and memorandum, were changed to the new MOI”. 

 

As per the Act, all incorporated companies have to comply with the new law. The transitional provisions provided that for a period of two years after 1 May 2011, a company could amend its MOI free of charge to bring it in line with the requirements of the Act.

 

Steenekamp observes that there seems to be uncertainty from companies on the implications of them not amending their articles and memorandum. “During the 24 months, from 1 May 2011 to 1 May 2013, the old articles and memorandum remain in effect for companies unless there are specific transitional provisions that override the articles and memorandum of association.”

 

“After the 24 months period (from 1 May 2013), the previous articles and memorandum will continue as the MOI of the company. If there is any requirement in the articles and memorandum that is in conflict with the Act, then those requirements will automatically be void from 1 May 2013,” Steenekamp confirms.

 

The transitional provisions are captured in Schedule 5 of the Act and include requirements such as the duties, conduct and liabilities of directors as well as approval of financial assistance or distributions. “It is imperative that companies are aware that the requirements set out in Schedule 5 therefore apply to companies with effect from 1 May 2011, even if the articles and memorandum had stated any other requirements”, Steenekamp advises.

 

It is the responsibility of companies to review their memorandum and articles and identify any possible conflicting provisions. The decision to amend the articles and memorandum is ultimately the company’s and should be based on the review of the company documents.

 

An example that companies need to consider is the fact that the current articles and memorandum require a company to prepare annual financial statements that are required to be audited at the end of each financial year. However, in terms of the Act, not all companies require an audit of their annual financial statements.

 

Companies should therefore take note that this is one of the requirements included in their articles and memorandum that should be adhered to. Although this is not in conflict with the Act, nor a requirement of the Act, it should still be adhered to post 1 May 2013. “It is also important to note that companies can alter their MOIs to impose a higher restriction or more onerous requirements on the company, which it has to adhere to”, says Steenekamp.

 

Steenekamp states that companies should take note that it is not compulsory to amend their articles and memorandum which will now be known as the MOI, but it would be a prudent business decision to review the current articles and memorandum requirements in line with the requirements of the new Act and to take note that any conflicting provisions, not already included in the transitional provisions, will not be valid after 1 May 2013.

The Broad-Based Black Economic Empowerment (BBBEE) Amendment bill that is under review after the period for public comment is expected to be released later this year. The bill seeks to address the gaps and unintended negative consequences of the Black Economic Empowerment Act of 2003. But government may find that by plastering up some of the cracks, new breaches will be uncovered.

An end to fronting?

The bill's introduction of tough new measures to combat fronting has been welcomed by many businesses and verification practitioners and is long overdue. Fronting practices usually refer to misrepresentation or window dressing pertaining to ownership, management appointments and the use of artificial BEE compliant intermediaries.
Fronting will become a statutory offence punishable by fines or imprisonment and the revised regulations will go a long way towards preventing the proverbial puppet show and enrichment as opposed to real development and empowerment.

More red tape and new requirements

A new BBBEE commission will be put in charge of evaluating and monitoring compliance, investigating instances of fronting and prosecuting offenders.
However, the commission will need to provide clear guidelines on what constitutes fronting as opposed to empowerment and how the process of governance is going to work in practice. Companies that attempt to develop their black staff may find themselves on the wrong side of the commission. We can see that the future might have a CCMA type process to resolve these issues. What would the process be for a company that may be unfairly accused of fronting by a competitor or disgruntled employee?
Even more problematic than putting pressure on business is that the bill gives public sector bodies the power to determine and implement their own transformation policies, provided that they have the consent of the relevant minister.
Since these policies are set to take precedence over the BBBEE codes, this could be a recipe for conflicting legislation with far-reaching consequences, including untold confusion for the suppliers who will be at the receiving end. This particular amendment should not be allowed to make it into the final bill.

Tightening up on verification agencies

Verification agencies will have to implement greater vigilance and better measurement processes and heed the bill's call to report instances of fronting. They themselves can be prosecuted if they fail to identify misrepresentation practiced by their clients.

State gets regulatory autonomy

The bill requires all public sector entities and state-owned enterprises to use BEE compliant suppliers. This means that any company wishing to do business with government needs to validate their BEE compliance through being verified by an accredited verification agency or IRBA approved B-BBEE Registered Auditor. Exempt Micro Enterprises also need to provide proof of their exempt status and more companies are demanding the SANAS logo on EME certificates.
This has unfortunately led to an increase in fraudulent certificates sold to unsuspecting emerging black business owners. Veri-Com recently uncovered one such a scam artist operating right outside of the dti offices at Campus Square selling fraudulent BEE certificates and tax clearance certificates.

Balancing regulation and growth

It is obvious that the South African economy should have a much larger participation by real black business and there are many programmes set up by government to assist black companies to become successful and sustainable, but the ever-increasing administrative burden of compliance is taking its toll on all business. Hopefully government will succeed in growing the economy without damaging it first.

Identifying and implementing an effective programme to ensure you, as an SME are compliant with the new Companies Act and the impact of non-compliance.

The hype surrounding the implementation of corporate governance must be very daunting for any small medium enterprise (SME) and ultimately the business owner. Just the jargon around legislation, codes of practice and internationally recognised standards can be confusing – not to mention ensuring compliance.

Understanding the concepts

Firstly, business owners need to differentiate between and understand these:

1. Legislation/Compliance

Compliance by entities with the New Companies Act no. 71 of 2008 is mandatory for all entities and non-compliance with the Act will have serious repercussions for SME’s and ultimately for the directors and officers of the entity.

2. Codes of practice

There are a number of codes by which business should operate. These have been adopted by countries based on the best business practice and benchmarked in their country. They include the United Nations Code, the Global Business Standards Codex and the King Code.

In terms of acceptable codes of practice, the King III report released in 2009 is seen internationally as the forefront of corporate governance and in all likelihood will be deemed as the benchmark for best business practice by the courts in any cases presented to the courts in South Africa.

3. Measurement

The ISO31000, set by the International Standards Organisation, is the standard measurement for compliance and risk management. This measurement standard needs to be applied in order to evaluate whether or not an entity complies with the parameters set as the benchmark for compliance.

Why the new legislative requirements?

In terms of the legislative process in South Africa, The New Companies Act has placed a greater emphasis on all companies to constantly review both their Compliance Management (CM) and Enterprise Risk Management (ERM) as an integral part of the continuity, sustainability and success of the enterprise. The Act has made legal many of the recommendations of the various King reports. Compliance with the Act is mandatory and failure to comply may result in penalties and or prosecution of the guilty party.

What is Compliance Management and Enterprise Risk Management?

Compliance Management

• Financial Controls Management, including audit management
• Compliance and Governance
• Survey, measurement and reporting
• Ongoing development

Enterprise Risk Management

• Operational Risk Management
• Information Security Risk Management
• Project Risk Management
• Risk Modeling Structure
• Continuity Management

What are the recognized standards and measurement?

The International Standards Organisation’s ISO 31000 is the global standardisation for implementation of risk management within an enterprise. It was published in 2009 with the main purpose of being the global standard in providing best practice guidance and structure for all operations concerned and affected by risk management.

How do SME’s ensure they comply?

In terms of implementing an acceptable program, an SME needs to focus on the two aspects in terms of complying with the Companies Act and the King III Code. The first being the legislative or compliance management (CM) aspect and secondly the enterprise risk management (ERM). These two components may be included into a single process within the company, but will maintain specific accountable areas.

Who is responsible for compliance?

It is important to stress that the responsibility for creating a compliant culture within an enterprise cannot be delegated to management and staff. The accountability remains the responsibility of the board of directors.

How does an SME implement this?

Currently there are many suitable software programs which may be utilised to implement a CM and ERM program. However, a comprehensive understanding of the requirements and components is needed first. Implementing a program without proper understanding could be costly and also ineffective for an SME.

It is not a prerequisite to have a specific type of program, but rather:

• That the person accountable clearly understands their obligations
• Applies their mind to the implementation of an effective CM and ERM process
• Maintains the compliance once it has been implemented
• Ensure the company lives the culture so that this permeates throughout the enterprise and is recognized by all staff as being the manner in which they operate and do business

Why is it so important?

Proper analysis, implementation and on-going application of the CM and ERM process will help protect the Directors against personal liability. They will not be protected in terms of liability as a result of their negligence and non-compliance of the Companies Act.

Is it beneficial for an SME to implement such a process and program?

The law

In view of the requirement of the Act, all entities must comply. For this reason alone, it is preferential that SME’s take the trouble to understand and implement an integrated process within their entity which will be considered as complying with the corporate governance and best practice approach of the King III code.

Efficacy and Profit

• It has also been argued that entities which have applied a code of practice within their organisation are better perceived and more highly valued than those who do not
• While an independent CM and ERM are not mandatory, the implementation of such a process, albeit a simple system, may reduce the costs of identifiable transferable risks within the SME, thus increasing profit
• Finally, the implementation of a process will definitely assist an SME in addressing aspects of the process properly and timeously thereby protecting the business and assuring continuity and sustainability for all of the business stakeholders.

Arguably, any company with a growth plan needs to look at Africa as a potential business option, as it is one of the few places that are currently showing growth.  Business in the region is however very different.  The African business landscape is definitely more relationship-driven in addition to being extremely price-sensitive, and with more and more companies piling in, it is very competitive.

It is important to stay abreast of the legislative requirements of each country and also to understand the impact of foreign exchange fluctuations, which can impact profitability rapidly.  From our perspective, we ensure that our branches not only abide by legislation, but we also prefer to employ locals from each of the countries we operate in. Not only does this afford locals the opportunity to assist in the economic upliftment of their own country, but it also helps us to better understand and deal with local business issues.

Challenges

It is however crucial to do your research and to have solid financial controls in place before embarking on an African business venture.  The money trail is certainly a great deal harder to track in Africa as you don’t have agencies and companies that can readily do a credit check on a prospective client.  Business transactions can be very large, and companies often find that they will not be insured on a transaction for the full amount or not insured at all.  It is therefore of paramount importance to have an airtight financial management system in place.

Finding a balance between too rigid an approach to financial control systems and the building of a lasting relationship can be tricky though.  It literally boils down to having sufficient country knowledge on your side that needs to be supported by a strong ability to build lasting relationships and trust.  People in Africa are generally great to deal with and the cultural experience is fantastic, but it takes time and presence in a country to gain enough of a foothold to comfortably partner with prospective clients.

The logistics of doing business in Africa is a complex dynamic that needs to be considered.  By definition, you will be dealing with custom officials and varying country regulations on a regular basis, which in itself poses an element of risk.  Do you then deliver directly to the client or do the products become the property and responsibility of the client once it enters the country?  All of these logistical factors need to be considered and planned for when it comes to the establishment of a distribution network that works.

Keeping cash flow liquid in Africa is another challenge to contend with.  Financial transactions are a great deal more complex in Africa, but very rewarding.  Some countries are quite prompt with their payments whereas you can wait up to 90 days for payment from others, which diminishes your profits in the low-profit market quite significantly. We also find that the government and parastatals in each of the countries are big drivers of technological business.

The infrastructure within Africa is steadily increasing with connectivity improving a great deal.  Education standards, unfolding opportunities and the size of the economy in each of the countries act as a barometer to how Tech-savvy a country is.  All the countries are however growing with leaps and bounds from a technological point of view, which provides a perfect platform for businesses to expand its footprint on the African continent.