Positive legislative changes made to the Learnership Allowance Incentive

In the 2013 Budget speech, Finance  Minister, Pravin Gordhan, emphasised that one of Government’s most pressing development challenges is to expand work opportunities for young people: “There has been extensive debate on how this should be done and the answer is that a wide range of measures are needed, including further education, training, public employment opportunities and support for job creation in the private sector.”

Learnerships help young people to obtain a formal qualification, while gaining relevant workplace experience. While there are many benefits to the prospective learners, there are also advantages to the employer implementing the learnership. Employers have the peace of mind that their employees are not away from the office for extended periods of time and while they are away, they are improving their relevant work based skills to be more productive and efficient at what they are employed to do.

In 2002, the Government introduced a Learnership Allowance Incentive, for employers to:

• Encourage job creation by reducing the cost of hiring and training employees through learnerships
• Promote skills development
• Encourage human capacity development

However, there is a very specific legislation that guides the process and it poses certain challenges. Tax Talk spoke to Rob Cooper, tax expert and Director of Legislation Updates and Proposed legislation at Sage VIP, part of the Sage Group plc, about some of the recent changes made to the Learnership Allowance Incentive.

Cooper says: “To encourage employers to participate in learnerships, an allowance in the form of a deduction from the company’s taxable income has been available for many years. To qualify for the learnership allowance, employers must register the learnership with SETA. There is a R30 000 allowance at the start of the learnership, and a further R30 000 upon the successful completion. The value of the actual incentive has always been influenced by the when the learner is registered and the learner’s failure to complete. However, with new legislation introduced in January, the scenario will change.”

Cooper explains: “In the past, the allowance (deduction) was only allowed during the year in which the learnership agreement was officially registered with SETA.  For a variety of reasons, registration often takes a couple of months and this resulted in reduced value.”

“In future, employers will no longer have to register learnerships from the moment of the inception. A learnership will be deemed to have been registered for the duration of the agreement that falls within the employer’s year of assessment. However, it is necessary that the learnership is registered within 12 months after the year of assessment.”

“The second issue relates to failure to complete. In the past, the allowance was not granted if the learner previously failed to complete a prior registered learnership of similar nature to the new learnership.  Typically, the employer was not aware of prior learnerships (i.e. the information was not easily accessible or the quality of the information was not reliable, as it is dependent on feedback from other employers). Attempts to obtain this information also delayed the registration process.”

“In future, employers will no longer have to find out details of the individuals’ learnerships entered into with other employers.  Learnership allowances will only be refused if the learner failed the same type of learnership with the same employer (or associated institution).”

”Implementing a learnership programme within your company will definitely contribute to job creation, especially for young people. However, it is important to keep track of all the legislative changes.  Make sure that your company is operating within the parameters of the basic conditions of employment and its legal requirements. It is crucial to being a responsible citizen,” concludes Cooper.

For more information, employers are invited to attend the Sage VIP, Payroll and Tax Seminar. You can book your seat at:  www.vippayroll.co.za.

Practical Legislative guidelines for employers in 2013

Rob Cooper is a tax expert and Director of Legislation Updates and Proposed legislation at Sage VIP, part of the Sage Group plc. 

Rob Cooper

“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 exclusions of 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.

Budget a balancing act

By Rob Wilkie, CFO Sage South Africa

Rob Wilkie

Whilst last year’s budget was all about infrastructure expansion investment, this year the emphasis is in keeping the budget deficit in check.

Mr Gordhan announced in his 2013 budget speech that tax collections would be R16.9 billion less than the estimate made in the 2012 budget. This was largely as a result of weaker economic growth, labour unrest and lower commodity prices. Economic growth for 2012 is expected to be sluggish at 2.7% with mining strikes and stoppages costing the economy approximately R15.3 billion.

As a consequence, the budget deficit increased to 5.2% of GDP. In other words, government spending exceeded tax revenue collected by R185 billion. In business terms, government made an operating loss in 2012.

In order to reduce the deficit (or rate of cash burn) Gordhan said that he would not increase taxes or impose drastic austerity measures, but would instead reduce the rate at which public spend was escalating. He said he would do this by utilising government’s contingency reserve (R23.5 billion); reprioritising expenditure to strategically important initiatives (R52 billion); and reducing financial mismanagement and corrupt expenditure (6% of GDP).  If successful, the growth in government spending would be reduced to 2.3% in real terms (7.8% including the effects of inflation) and the budget deficit brought back to 3.1% over 3 years. Additional borrowings of R497 billion would be required to fund the deficit, increasing government debt to R1,7 trillion or 40% of GDP. Gordhan said that he was comfortable with this level of debt and SA’s ability to meet its debt service commitments.

If government were a business the budget would read as follows:

• Business SA has made a loss equivalent to 5.2% of its turnover.
• It does not want to increase its prices as existing customers may stop buying and new customer acquisitions decline.
• To return to profitability (or reduce its loss) Business SA therefore has to reduce its cost base or at least slow its cost growth.
• It will do this by a combination of resource reallocation to its priority initiatives and reduction of inefficiencies and wasteful expenditure.
• Until such time as it is able to return to profitability Business SA will utilise its cash resources and credit lines to fund its losses.

It is a balancing act.  Do you cut deep; stop the cash burn but risk sustainability and preparedness for the next cyclical upturn? Or do you rather focus on efficiency gains and investment priorities, live with losses and more debt, but enhance sustainability and competitive edge?

Government has chosen the later, both for socio economic and structural reasons, but also because it has the capacity to borrow in order to sustain deficits. I believe they have got the balance right in this budget. It is now up to government to show the political will and commitment necessary to implement it.