February 2005

As usual, the year is flying past. We seem to be living in very exciting times with an increasing level of energy in the economy and a spirit of optimism which is very exciting. We are looking forward to a very good year for all our clients. The update is intended to remind you of the focus for this quarter and to introduce you to areas of HR interest.

1. Skills Development

The current training year will be ending on 31 March 2005 and we will need to send the Seta’s the Annual Training Reports for the 12 months from April 2004 – March 2005. Please ensure that the training you planned for, has either happened, or is scheduled. Should your training activity be much less than that planned, the possibility exists that your grant will not be approved.

In April the first 5 year National Skills Development Strategy (NSDS) 2000-2004 comes to an end, and the next 5 year cycle begins. This will involve the development of the NSDS for the new period 2005-2009.

The criteria, under which the SETA’s will operate will be set for Year 6 (1/4/2005 – 31/3/2006) which will determine how they will focus their efforts and what funding will be available for projects. These changes, which are currently either in proposal form or under consideration may include:-
Aligning the Workplace Skills Plans to the Employment Equity Reports and the meeting of BEE/EE compliance criteria.
Reducing the current 25 Seta’s to 20.
Changing the grant payment system from the current 60% of levies paid in (mandatory grant of 15% and implementation grant of 45%) to a total of 50%, and increasing discretionary grant funding.

2. Black Economic Empowerment: Keeping the Score

Codes of Good Practice and the Balanced Scorecard

The pressure on business to progress with Broad Based Black Economic empowerment initiatives in order to survive and prosper in the South African business environment has been increased through legislation and the Codes of Good Practice that have recently been published.

The Department of Trade and Industry (DTI) has released a generic scorecard against which progress can be measured. It is this scorecard that will have to be used when responding to government and public company requirements. Efforts by independent bodies and sectors to measure progress will have to align with the DTI’s generic approach.

As business leaders we need to have strategies in place that are based on the right principles, rather than tricks up our sleeve to beat the system. We recommend that if you do not already have a plan in place, you start as soon as possible to develop a practical 5 to 10 year strategy. Continual pressure will be placed on you by customers and suppliers to show that you are accommodating BEE requirements to some degree at least. Your customers and suppliers may be under severe pressure to comply with their internal BEE procurement policies in awarding contracts to you in the future.

What exactly should Small and Medium size businesses be doing? Frankly we are not too sure right now, because we are expecting businesses with less than 50 employees to have different scoring measures published applicable to them. Government has apparently recognised that the generic scorecard is not appropriate for smaller entrepreneurial, family based businesses.

The problem is that although the principles to be followed are relatively clear, the actual scoring methodology is not, and it is predictably becoming more and more complex. It is difficult to keep score if the rules are not clear. Imagine a cricket game where the batsman hits the ball into the air and over the boundary. The first umpire says ‘it’s a Six’, the second umpire argues ‘no it’s a five.’ They ask for the third umpire to go through the video material and the opinion comes back that it is a five-and-a-half. The supportive crowd are very angry because they believe it is a clear seven!

While the finer points are not yet clear enough in some areas, the underlying principles are. Black empowerment principles must be applied and strengthened in all areas to reflect South Africa’s broad demographics. One view is that Blacks are expected to be advanced at a much faster pace than other groups. Ultimately the rules may be refined to force demographic profiles to be ‘broadly’ reflected in empowerment scorecards.

The effective management of Employment Equity and Skills Development processes forms upward of 40% of the scorecard. The sooner you begin the journey the more comfortable it will be. We can assist you in your efforts and keep you up to date with new developments to ensure that your business remains in step with requirements that are necessary to secure future growth and profitability.

3. Tax Issues

Changes in tax provisions are happening on a continuous basis and are consequently difficult to keep abreast of, unless you have a source that is keeping you up to date.

For example, are you aware of changes in the way casual workers are to be taxed? Are you aware that contract workers, which you use on a regular or continuous basis, may be legally defined as your employees – with tax and other implications under employment law? Are you aware that if certain allowances are listed on the employee’s tax certificate it could be to their disadvantage rather than to their benefit? That all CCMA awards are subject to a 40% tax deduction regardless of the earnings level of the employee, or the size of the award?

Recent changes have been effected to the Unemployment Insurance Act and further changes are expected in the near future to align a number of employment acts to ensure they compliment each other, rather than contradict or confuse on issues.
Changes are anticipated in a number of areas with the Finance Minister’s Budget speech which sees increases in the level of Company Car tax and changes to the way in which we calculate car allowances (much needed revisions to the costs of maintenance and fuel and a cap on the value of the vehicle). We have still to see the detailed implcations of this. The further reduction in personal tax and the small reduction in company tax is always welcome.

4. Developing Entrepreneurial, Leadership and Management Skills

For a company to be successful it must develop the human potential invested in their people. To do this sufficient management attention must be directed towards optimising efforts involving the appointment, retention, mentoring and development of their staff.

Unfortunately employees are not, in the normal course of life, taught strategic, entrepreneurial or life planning skills; nor are they taught how to think about setting goals for themselves – all the ingredients that if nurtured and developed, would add value to their contribution to you business.

Regardless of how efficient your technology systems, business processes and customer services may be, if people skills are not constantly developed and improved, your results will be mediocre against competitive businesses that are able to harness the potential of their human capital.

In South Africa, traditional in-house HR departments find it difficult to extend much beyond the basic administrative functions. Support is needed from specialist HR service providers to assess the gaps and weaknesses in their HR strategies. They can then, together with their staff, develop the competencies necessary to maintain a position of leadership in their areas of business.

Leaders must embrace new ways of doing things and break the restraints that hold their people back from adapting and responding to the change opportunities that confront them on a daily basis.

5. Concentrate on your Core Business

Boom conditions are predicted for 2005 and beyond for business leaders to take advantage of. Leaders need to guard against being distracted by the growing administrative and legal requirements relating to the employment of staff. They need to concentrate on managing and growing their core business, remaining alive to the new opportunities, which present them on an on-going basis. Well intentioned as the plethora of new legislation may be, it has the danger of draining energy away from the creativity and energy required of business leaders.

While leaders need to be up to date with statutory requirements, they should not allow themselves to be overwhelmed by trying to gain mastery of all the complexities and the sometimes onerous demands of developing new HR policies and practices to accommodate these.

It is also unreasonable to expect an individual HR practitioner to be up to date on all the changing requirements of acts, regulations and codes of best practice relating to employment conditions. Less so, to design and implement innovative HR practices.

Connold and Associates work on developing relationships with clients to provide the full spectrum of HR services as and when necessary. This includes payroll, personnel administration, staff development systems, such as performance appraisal, incentive schemes, staff profiling, initiatives, tailored development and mentorship programmes. Work is charged on an assignment basis for value added against a business case. This assures clients of positive outcomes, which will far outweigh costs incurred.

6. If It Ain’t Broke, Don’t Fix It – The need for an HR Audit

“Ja, everybody gets paid on time and there’s a form for everything and the revolution’s over. Don’t hear much from HR, so they must be doing fine.” But how fine?

• Are policies and procedures up to date?
• Do employment contracts reflect employment conditions?
• Are pay structures in place?
• Are job descriptions current and correctly evaluated?
• Is leave being managed properly?
• Are allowances being correctly applied?
• Are tax regulations complied with?
• Is sufficient attention being paid to current legislative changes?
• Are the necessary statutory returns being submitted?
• Are systems up to date?
• How fair and effective are your the people management systems?
• What information are you receiving on a month-to-month basis to assist you in the strategic running of the business?

Maybe running a health check would not be a bad idea? An outside audit can be a major help to your HR staff and could lead to significant cost savings and business improvements. It will more than cover the cost of the exercise and bring greater peace of mind to management, employees and the HR function.

7. Conclusion

It is time to build sustainable companies for the future and in order to do that we need to pay attention to the Human Resource strategies of our companies going forward. This is as important as the Financial strategies we find so easy to develop, particularly with the increasing skills shortage we are facing in even quite low level jobs and the increasingly high salaries we have to pay to attract talent. We need to urgently revisit our training, development and learnership opportunities.

If you would like any information on how to approach this and any of the above issues please contact us for more information.