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Mere Compliance with the Employment Equity Act Results in No or Insignificant EE Transformation

By Jan Munnik, MD EES-SIYAKHA

 

Summary

  • Progress towards achieving Employment Equity in higher occupational levels has been painfully slow.

  • A significant reason for this is the tendency of Designated Employers to treat EE as purely a compliance ‘tick the boxes’ issue.

  • This often results in non-compliance and very little, if any, progress in the achievement of employment equity as intended by the EE Act.

  • The main reason for this is that the EE Act is silent regarding how an employer should go about its Section 19 (1) Barriers Analysis and monitor and evaluate the implementation of its EE Plan.

  • An employer that is serious about EE transformation therefore needs to go beyond compliance to effectively address these omissions in the EE Act.

  • This article sets out what an employer needs to do so.

  • As this will involve costs, an employer should budget for this.

 

Slow progress with Employment Equity over the years

Progress in the achievement of Employment Equity (‘EE’) in the workplace has been painfully slow since the introduction of the EE Act 55 of 1998 in 2000, as evidenced by the following selected extracts from recent Commission for Employment Equity (‘CEE’) Reports.

 

‘The trends in the 2014/2015 report remain relatively unchanged. Change remains slow and again means that the Sunset Clause is a ‘pie in the sky’ concept. What is further alarming s that how in some of the provinces and sectors we have witnessed a decline in black representation where it matters most’ – CEE Annual Report 2014-2015.

 

‘The Report again demonstrates a very slow pace of transformation in the SA Workplaces. Black people, and Persons with Disabilities remain under represented at Top and Senior Management levels. It is not an exaggeration to say that not much has changed’ – CEE Annual Report 2016-2017.

 

‘Twenty years on and we are still nowhere celebrating effective implementation of transformation legislation. We cannot even begin to contemplate the implementation of a ‘Sunset’ clause on this legislation’ – CEE Annual Report 2017-2018.

 

What the EE Act requires a designated employer to do in order to comply 

In terms of the EE Act, an employer must in consultation with workforce representatives:[1]

  • Conduct an analysis of the workforce profile.[2]

  • Conduct an analysis of policies, procedures, practices and working environment to identify barriers that adversely affect persons from Designated Groups[3]e. barriers to their advancement and retention in the workplace.

  • Develop a compliant[4] EE Plan, which will make reasonable progress in the achievement of Employment Equity in that employer’s workforce.[5]

  • Implement the EE Plan.[6]

  • Annually submit a report to Director-General (‘D-G’) of the Department of Labour (‘DoL’).[7]

 

An employer must further:

  • Appoint a Senior EE manager.[8]

  • Inform the workforce.[9]

  • Keep records.[10]

 

The thinking behind the Barrier Analysis requirement of the EE Act

Underlying the requirement of an analysis of an organisation’s Policies, Procedures, Practices and Working Environment to identify barriers that adversely affect persons from Designated Groups is the recognition that HR policies and procedures, their application in practice and the working environment have a direct impact on the advancement, development and retention of the employees the EE Act is trying to benefit i.e. Designated Groups.

 

The authors of the EE Act recognised that policies and procedures in categories such as recruitment and selection, job classification and grading, performance and evaluation systems, training and development and succession and experience planning, etc. are intended to enhance employees’ performance, development and advancement. Hence the inclusion of these in the Categories listed in the EEA2, EEA12 and EEA13 forms.

 

However, policies, procedures and their ensuing practices often fail to achieve such objectives or discriminate against persons from designated groups as a result of bias or shortcomings in the policies and/or procedures, or in their application in practice by line managers. Such bias or shortcomings are barriers to the advancement of persons from designated groups. This is apart from the more obvious barriers employers mostly focused on when conducting barriers analyses.

 

The above is reinforced by the Code of Good Practice on the Integration of Employment Equity into Human Resource Policies & Practices (‘EE & HR Integration Code’), which includes detail of procedures associated with HR programmes that render the application of their resultant policies and associated practices, effective. Of particular relevance regarding this Code is the statement from the Code that ‘This Code is not intended to be a comprehensive Human Resources Code, but rather an identification of areas of human resources that are key to employment equity and can be used to advance equity objectives’.

 

The working environment impacts on the performance, accommodation, motivation and retention of all race, gender and disability groups. A working environment that fails to facilitate optimal performance, accommodation, motivation and retention of all race, gender and disability groups impacts negatively on the advancement and retention of persons from designated groups as a result of barriers thereto.

 

The identification of all barriers in policies, procedures, practices and working environment in the 18 Categories and their resultant removal is therefore critical to the advancement of persons from designated groups and the achievement of equitable representation of suitably qualified persons. This is intended to be achieved through:

 

  1. The barriers analysis and identification process.

  2. The development of AA measures intended to address or remove the identified barriers for inclusion in the employer’s EE Plan.

  3. The implementation of the EE Plan’s AA measures during the period of the EE Plan.

 

Any employer that is serious about transformation in the Employment Equity space should follow a thorough process in conducting the required barriers analysis.

 

No provision in the EE Act for Barriers Analysis methodology and EE Plan implementation 

Neither the EE Act as amended, the Regulations or any of the EE Codes of Good Practices contain any provisions or directions as to how an employer should go about identifying barriers.

 

The same applies to the monitoring and evaluation of the implementation of an employer’s EE Plan. Whilst the EE Act does require an employer to consult with workforce representatives regarding the implementation of its EE Plan[11] and to state in its EE Plan the persons in the workforce including senior managers responsible for monitoring and implementing the plan[12], the EE Act, Codes and Regulations are silent on how an employer is to do so and manage its EE transformation.

 

Consequences of ‘ticking the boxes’ compliance approach to EE 

The above silence in the EE Act and its accompanying prescripts have led to the vast majority of employers who approach EE with a ‘tick the boxes’ compliance attitude, conducting wholly inadequate barriers analyses, resulting in even more inadequate AA measures, and whose monitoring and evaluation of the timeous implementation of both their numerical goals and AA measures are mostly ineffective. This was borne out by over 40 EE Risk Assessments[13] conducted by EES-SIYAKHA between 2015 and 2018. Trends detected during these Assessments with regards to participants’ barriers analyses were:

  • A lack of any or meaningful consultation.

  • The use of surveys without follow up focus groups[14]

  • Breaking the EE Consultative Forum (‘EECF’) into task teams to come up with barriers in the different Categories[15]

  • The use of surveys with follow-up focus groups, but not covering all the required Categories.

  • Very superficial analyses, only identifying barriers that stand out.

  • No examination of existing policies and procedures with the aim of identifying barriers.

  • Focusing wholly on unfair discrimination.

  • No examination of how Policies and Procedures are applied in practice.

  • No or little examination of barriers in the working environment.

  • Very little, if any, connection between the identified barriers and the EE Plan’s AA measures, as required.

 

The following deficiencies were identified with regard to the monitoring and evaluation of EE Plan implementation:

  • No involvement therein of the EECF.

  • Only aspect being monitored is Numerical Goals achievement.

  • Where the EECF is involved, no link between its recommendations and any decision-making body that can act thereon.

  • Absence of the establishment of a special EE decision-making/facilitating EE Management Structure (see below) to which EECFs can direct their recommendations and participate in.

  • Absence of regular meetings at which the EE Plan’s implementation can be monitored and evaluated.

  • Insufficient or poor preparation of data and information to be evaluated and monitored.

 

This failure by employers to conduct thorough barriers analyses and to manage the implementation of their EE Plans effectively is the main cause of the painfully slow progress in the in the achievement of Employment Equity in the workplace demonstrated above.

 

How should an employer go about the conducting of a Barriers Analysis 

The first step for an employer that is serious about EE transformation is to change its approach to EE from one of just ‘tick the boxes’ compliance to one that implements EE transformation as an integrated strategy in a manner that will increase efficiency, sustainability and service delivery and/or profitability.

 

This can be done, by inter alia, firstly accepting as a basis to its approach to EE, that HR practices that are in line with ‘Best HR Practices’ create the most enabling environment for the recruitment, training and development, management, advancement and retention of employees i.e. the achievement of employment equity and transformation in the organisation. Such enabling environment will also ensure that employees are managed effectively and optimally supported to facilitate their growth and advancement in the shortest period. Under such conditions, an employer will also stand the greatest prospect of developing employee commitment, motivation, performance excellence and confidence, and retention.

 

Research has shown that most employers do not have ‘Best HR Practices’ in place. Whilst some employers may have ‘Best’ HR policies and procedures, their ensuing practices may not be at Best HR Practice level as a result of the policies and procedures not being applied by line mangers as intended. To create the enabling environment in which persons from designated groups can develop optimally, gaps between existing and Best HR Practices need to be identified (through the barriers analysis process) and removed (through the development of AA measures and the implementation of the EE Plan).

 

The point of departure should accordingly be that gaps between existing HR policies, procedures, practices, and ‘Best HR Practice’ are barriers to the advancement of persons from Designated Groups. It is thus imperative for the development of an effective EE Plan that the barriers analysis is, apart from the identification of other barriers and areas of unfair discrimination, focused on the identification of gaps between existing policies, procedures, practices and working environment, and Best HR Practice. The AA measures should then contain action steps to remove them and raise the level of HR policies, procedures and practices.

 

Whilst realizing that there is a cost implication hereto, the identification of barriers in policies, procedures, practices and working environment should therefore be facilitated in consultation with the EECF by a high-level independent HR consultant with in-depth understanding and knowledge of Best HR Practice. The basis of such analysis should be that any gap between ‘Best HR’ and existing practice constitutes a barrier. Each relevant policy, procedure and practice or working environment of each category should be tackled systematically to ensure legal compliance and efficiency.

 

As there is always costs involved in such facilitation by a third party, and it takes time, an employer that is serious about Employment Equity transformation will have to be prepared to invest in such exercise and to budget therefore, as well as for the development of the resultant AA measures.

 

What should an employer do to monitor and evaluate the implementation of its EE Plan effectively

 

Such an employer further needs to change how it manages or monitors and evaluates its EE transformation in order to manage its EE effectively. It needs to implement at least the following:   

     

  1. The establishment of a special transformation (management) structure to enable the CEO to best fulfil his/her leadership role.

 

Research done by Professor John Kotter from Harvard University Business School, who is an internationally acclaimed Change Management expert and author, has shown that EXCOs are not well suited for the management of transformation. Transformation is regarded a ‘soft’ issue with which EXCO members generally are not comfortable. It is normally placed at the end of the agenda, and then not given the requisite attention because of a time constraints. Kotter consequently suggests the establishment of a special transformation structure (which he calls the ‘Guiding Coalition’, but which the author refer to below as the ‘EE Management Structure’ – the ‘EEMS’).

 

Kotter proposes that the EEMS, should meet regularly to manage transformation, and be composed of EXCO members as well as other role players in the transformation process. In the South African EE context these would normally be the EE Manager/Driver (who may or may not be part of EXCO) and a number of key EECF members, including union representatives, where applicable. As the CEO needs to exercise his/her leadership role, it is imperative that the CEO be the Chairperson of the EEMS.

 

  1. The development and preparation of an EE Reporting Template to be used for monitoring and evaluation of EE

 

For the effective implementation of EE transformation its progress (or lack thereof) should be monitored, evaluated and managed. It is for this reason that an EE Reporting Template is necessary. An EE Reporting Template can be used to track at least the following aspects:

  • Progress in the achievement of an employer’s EE Numerical Goals.

  • An employer’s Workforce Movements.

  • The application of processes adopted to ensure that due diligence is applied by all line managers in making appointments aligned to an employer’s EE Plan.

  • Preparation of talent and resulting appointments.

  • Implementation of an employer’s EE Plan’s AA measures.

  • Implementation of an employer’s EE Transformation Process (Steps and Interventions).

  • Recommendations made by the EECF.

  • Response to EECF recommendations by an employer’s EEMS.

  • Progress in the achievement of an employer’s identified Critical Success Factors for the effective implementation of EE transformation.

 

  1. Institutionalisation of the management of EE transformation

 

Once the above structure and template have been put into place, it is critical that the management of EE transformation be institutionalised so that the effective tracking, monitoring and management of EE at the employer becomes ‘business as usual’.

 

This should all be provided in an employers’ EE Transformation Policy and Procedure which should set it approach to EE transformation, its EE strategy and all other aspects necessary to ensure EE compliance and the effective implementation and management of EE transformation at the employer.

 

Jan Munnik a former Attorney and Advocate, and is presently the Managing Director of EES-SIYAKHA, a leading Employment Equity Consultancy that has specialised in Employment Equity transformation over the past 19 years. EES-SIYAKHA specialises in assisting its clients to turn EE transformation to their business advantage by adopting an EE Best Practice approach, which goes beyond compliance.

For more information please visit EES-SIYAKHA at www.ees.co.za/index.html

 

[1] Section 13 (2) (a) read with Section 17 of the EE Act, 55 of 1998 as amended in 2014 (‘the Act’)

[2] Section 19 (2) of the Act 

[3] Section 19 (1) of the Act

[4] The requirements for this are set out in Section 20 of the Act and illustrated in the EEA13 form of Regulation 3783 of 2014 

[5] Section 13 (2) (c) read with Section 20 (1) of the Act

[6] Section 17 (b) read with Section 20 (1) of the Act

[7] Section 21 of the Act

[8] Section 24 of the Act

[9] Section 25 of the Act

[10] Section 26 of the Act

[11] Section 17(b) of the Act

[12] Section 20(2)(h) of the Act

[13] EES-SIYAKHA offers free Online Risk Assessments *

[14] Surveys only have the questions asked in the survey answered, and then only by giving an indication of agreement or disagreement and the extent thereof with the statement or question in the Survey. Although they can be helpful to determine burning issues, they do not meet the ‘substantial agreement’ consultation requirement of the Act 

[15] Without strong guidance, members of the EECF would not know what to look for when identifying barriers. Dividing them into task teams to identify barriers is therefore not the answer if an employer is serious about identifying all barriers.

 

 

 

 

 

 

 

Is commission included in the calculation of minimum wage?

 

In terms of the National Minimum Wage Act 9 of 2018, an employer may not pay any employee less than the prescribed minimum wage for time worked. The aforementioned is unambiguous, but can an employer pay an employee a basic salary which is less than the minimum wage, or even no guaranteed basic salary, provided that the commission earned by the employee exceeds the minimum wage as prescribed by the Act? This is what had to be determined in Atlas Finance (Pty) Ltd v CCMA & 2 others, 2022 JR57/21.

 

2022/05

By Jan du Toit

 

During 2020, I assisted one of our longstanding clients with arbitration under Section 73A of the Basic Conditions of Employment Act 75 of 1997 (the BCEA). The dispute related to an alleged underpayment in terms of the National Minimum Wage Act 9 of 2018 (the NMWA). In terms of the NMWA, an employer may not pay any employee less than the prescribed minimum wage for time worked.

 

The nature of the employer’s business was that of microlending, with sales representatives employed and responsible for securing new business. During 2018, the employer by agreement amended the commission structure of most of its sales representatives employed throughout South Africa, except for those employed in Rustenburg. The employees in Rustenburg refused to accept amended employment conditions and threatened the employer with industrial action.

 

The changes to the remuneration structure of the sale representatives, which included the earning of commission, were deemed necessary to ensure compliance in anticipation of the announcement of an effective date for the commencement of the National Minimum Wage Act 9 of 2018.

 

Facing possible industrial action, the employer abandoned its attempt to amend the remuneration structure of the Rustenburg sales representatives. The employees withdrew their dispute lodged with the Commission for Conciliation, Mediation and Arbitration (the CCMA) at the time and continued to accept, as demanded, remuneration in terms of the originally agreed remuneration structure.

 

In terms of the originally agreed remuneration structure, which was applicable to the employees by choice, their basic remuneration was below the prescribed minimum wage for the 40.5 hours that they were required to work weekly. However, in addition to their basic remuneration, the employees also earned commission for work performed during their working hours. The commission was calculated as a percentage of the value of successful new business secured per month. The basic remuneration of the employees combined with the commission they earned by far exceeded the requirements of the NMWA. To ensure full compliance with the NMWA, the employer also committed to top up employees’ remuneration to be at least equal to the minimum wage if an employee failed to generate sufficient commission.

 

During the period of January 2019 to October 2020, after the NMWA became effective, the employees were paid remuneration consisting of their basic agreed salaries as well as commission. Their basic salaries combined with their commission exceeded the minimum wage prescribed by the NMWA for 40.5 hours of work per week. Despite the aforementioned, a dispute was lodged with the CCMA in terms of Section 73A of the BCEA. The employees were advised and assisted by Mr Isaac Mokgatle from Workers Against Regression, a registered trade union. Mr Mokgatle was of the view that the employees’ basic salaries had to be increased to be equal to the minimum wage for 40.5 hours of work per week. This was despite the fact that their basic salaries and commission combined by far exceeded the minimum wage for the time worked.

 

Currently, there is no uniform stipulation of which earning components should be included in the calculation of national minimum wages. The BCEA defines remuneration as “any payment in money or in kind, or both in money and in kind, made or owing to any person in return for that person working for any other person, including the State”. “Wages” is a component of remuneration paid to an employee “in respect of ordinary hours of work, or if they are shorter, the hours an employee ordinarily works in a day or week”.

 

The specification of “ordinary hours” is important because it excludes, for example, productivity or overtime pay. In South Africa, wages are calculated based on the ordinary hours of work, which ensures that workers receive premium payments for work done outside of ordinary hours.

 

Internationally, regarding productivity and performance pay, there is no standard definition of the components of a National Minimum Wage (NMW), however, if one has regards to international standards, productivity and performance pay are considered supplemental forms of remuneration. They specifically include commission work, piecework and tipped work. Commission work refers to any system under which an employee receives supplemental pay based on the value or volume of sales.

 

At arbitration, Mr Mokgatle submitted that commission earned by an employee cannot be considered for the purpose of determining whether such individual is paid less, equal to or more than the prescribed NMW. It was further submitted that the employees were paid a basic salary less than the NMW, and that despite them earning a basic salary combined with commission for work done during normal working hours, such commission must, in terms of the definition of “wage” and as per Sections 4(4) to 4(7) of the NMWA, be excluded for the purposes of the dispute before the Commission.

 

I submitted on behalf of the employer that commission earned for work done during an employee’s normal working hours cannot be excluded for the purposes of determining whether an employee is paid less than, equal to or more than the NMW. The employees earned in excess of the prescribed NMW and Section 5(1) of the NMWA does not list commission as an exclusion for the purposes of calculating an employee’s wage. Furthermore, Section 5(3) of the NMWA also provides for the payment of an employee on a basis other than the number of hours worked, provided that such employee is not paid less than the NMW.

 

By virtue of his submissions at arbitration, Mr Mokgatle effectively introduced a mutual interest dispute pertaining to an increase in remuneration under the guise of a dispute related to the NMWA.

 

Commissioner Rakale from the CCMA in Rustenburg held that the employer was in contravention of the NMWA. He, furthermore, ordered that an amount in excess of one million rand be paid to the employees as backpay in addition to a fine as provided for in the BCEA.

 

We approached the Labour Court on review and submitted that Commissioner Rakale:

 

  1. committed a material error of law by excluding commission earned by the third respondents (the employees) in determining whether the applicant (the employer) complied with the NMWA.

 

  1. misdirected himself to such an extent that the outcome of the arbitration amounts to a gross irregularity, in that his conclusion was not objectively correct, and that a reasonable arbitrator would not have reached the same conclusion considering the evidence available at the hearing of the matter.

 

  1. misdirected himself by relying solely on the definition of “wage” as found in the NMWA, and by failing to properly consider the provisions of Sections 5(1) and 5(3) of the NMWA.

 

  1. misdirected himself by finding that the employer did not pay the employees according to the hours they worked, which is in stark contradiction to Section 5(3) of the NMWA.

 

  1. misdirected himself by failing to consider that employees whose basic salaries and commission payments were not sufficient to ensure compliance with the NMWA, were, as provided for in Section 5(3) of the Act, topped up to ensure compliance.

 

  1. misdirected himself by including in the calculation of the amounts underpaid the months of April, May and June 2020, during which the third respondents did not work due the lockdown imposed at the time.

 

  1. misdirected himself by applying an unknown calculation method in determining the value of alleged underpayments, resulting in amounts awarded that are inconsistent with the evidence placed before him by both the third respondents as well as the applicant.

 

  1. exceeded his powers by ordering the applicant to increase the agreed basic salaries of the third respondents.

 

Acting Judge Deane agreed and held that commission is not a discretionary payment, which is not related to an employee’s hours of work, but forms a part of the employee’s wages and that the intention was not to exclude commission from the NMW. However, commission workers must still be paid at least the NMW. Workers do not have to be paid the minimum wage for each hour worked, but they must be paid the minimum wage, on average, for the time worked in a pay reference period.

 

It was, furthermore, held that the Commissioner misdirected himself by failing to take into account the evidence placed before him showing that the employees were paid in excess of the NMW. He further misdirected himself by failing to consider that the employer acknowledged that employees whose basic salaries and commission payments were not sufficient to ensure compliance with the NMWA, were, as required per Section 5(3) of the NMWA, topped up to ensure compliance.

 

The Commissioner’s decision to exclude commission earned by the employees in determining whether the applicant indeed complied with the NMWA was not a reasonable decision and constituted a material error of law. The Commissioner misdirected himself to such an extent that the outcome of the arbitration award amounted to a gross irregularity. It was ordered that the employer was not in breach of the NMWA by virtue of including commission earned in calculating the minimum wages of employees.

 

Jan du Toit is a director at Labour Guide and can be contacted at [email protected].

 

This article does not constitute legal advice. For an informed opinion and/or assistance with a labour-related matter, you are encouraged to arrange a formal consultation with the author.

 

 

 

 

 

 

 

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