Skills Development for Small and Medium Enterprises (SMEs)

Written by Sylvia Hammond[1]Sylvia Hammond A generalist Human Resource Management practitioner of more than 30 years experience, with a Masters in Advanced Labour Law. Registered as MHRP (SABPP) and MSDP (ASDSA), with special interest in skills development. Published author of the JUTA Pocket Companion Understanding the Skills Development Act, various conference papers on aspects of implementation, and journal article on skills development law. Currently Consulting Editor with Portal Publishing managing www.skills-universe.com social network.

What do SMEs contribute to skills development already?

Many SMEs are not aware of the valuable contribution they can make by providing their employees and young people with skills so they are better equipped to participate in the economy. Every organisation (except public sector and public benefit organisations, who are exempt) with a payroll of R500 000 per annum and over must pay a 1% skills development levy (SDL).  Many SMEs have simply regarded this as a ‘tax’ and have not made any effort to find out where the money goes, and how they may be able to recover part of the SDL, which can be used for training and development.

The 1% SDL is paid to the South African Revenue Service (SARS), and 20% of this is paid over to the National Skills Fund (NSF) to fund projects of national importance. The remaining 80% goes to the 21 Sector Education and Training Authorities (SETAs) in proportion to the number of companies registered in each sector (a small SARS admin fee is deducted).

So the first thing for SMEs to do is to check in which sector they are registered. Each sector is further broken down into standard industrial classification (SIC) codes. So each company will be registered in a SETA and then in the sub-classification of the SIC code. When the SDL was instituted in April 2000, a company’s finance department or bookkeepers were the contact points for SARS and would have received the original registration documents for completion, or the registration would have been completed subsequently for new companies.

For more detailed information on the SDL, a list of SETAs and SIC codes, the SARS website provides Guides, so access www.sars.gov.za and search for SDL, and for Quick Guide to SDL. As the SETAs have changed over the years and are expected to change again in future, always ensure that you are looking at the most recent document.

How can SMEs start to actively participate in skills development?

Once the SME has identified their SETA, it can start participating in skills development by making contact with the SETA and registering a Skills Development Facilitator (SDF), who may be an external consultant or someone within the company. The SDF is responsible for preparing a plan of the training to be done, a report on training that has been done, and for completing the documentation and submitting to their SETA.

Who may be the SDF? This role represents a chance for an employee to learn new skills, for which training may also be included in the training plan. The SDF may be someone who is interested in employee development, or a person fulfilling a payroll, personnel or human resources role. In a technical environment, where there is an artisan responsible for training, they may also be interested in fulfilling the SDF role.

There is a professional body for SDFs, the Association for Skills Development in South Africa (ASSA), which is registered with the South African Qualifications Authority (SAQA) as a professional body, and their website www.asdsa.org.za provides guidance on registration. The benefit of membership of ASDSA, especially for SDFs of SMEs, comes from the ability to network with practitioners dealing with the same issues. 

The skills development year runs from 1 April until 31 March – and the plan and reports need to be submitted by the end of April. The SETAs have websites providing guidance and many conduct regional roadshows annually, where they provide the SDFs with information on updated requirements. The company will then be compliant with the Mandatory Grant and entitled to a refund of 20% of the 1% (this percentage has been legally challenged and the percentage refund may change in future depending on the outcome of the matter). In addition, once compliant with the Mandatory Grant, the SME will be able to participate in discretionary grants, which will provide the means for supporting youth employment and development.

How are discretionary grants different from mandatory grants?

Once an SME has started to participate in skills development by submitting their Mandatory Grant, and the submission has been accepted by their SETA, then the SME will be able to apply for discretionary grant (DG) funding. Each SETA will have different priorities for skills development, depending on the economic circumstances of that sector and sub-sectors. Each SETA is required to prepare a Sector Skills Plan (SSP), which identifies the scarce and critical skills in the sector. Based upon those priorities, the SETA will open funding ‘windows’ for DG funding.

For DG funding, the type of interventions considered are:

  • Learnerships, which lead to an occupational qualification or part qualification;
  • Apprenticeships, which lead to a trade;
  • Internships, which may follow an academic graduate qualification, or for in-service training leading to an academic qualification;
  • Bursaries, which cover the costs of registration for studies, books, and exam fees; and
  • Adult basic education and training (ABET), which is the literacy and numeracy equivalent to primary education levels.

The SMEs are then able to consider what interventions they will be able to implement to support their employee development and benefit the company performance. In a technical environment, an appropriate intervention might be for apprenticeships; in manufacturing, learnerships for supervisors or operators may be beneficial; in an unskilled and semi-skilled environment, employees may benefit from ABET.

Then there are internships and work experience interventions. The company may agree to take a student who requires work experience to finalise their qualification – for example, a Diploma in Food Technology requires a year of work experience to formally qualify. The company may receive an internship DG, which will fund the student’s stipend. Procedures in each SETA may differ. In most cases, there will be a notification of a funding window, which will be opening. The notification asks for expressions of interest and potential numbers that may be accommodated. SDFs may submit applications for the numbers that the SME can sustain – this might be a small number.

Each type of intervention will have slightly different documentation requirements, but each intervention once accepted by the SETA will be fully documented with contracts and supporting certificates, such as learner identity and previous qualifications. While formal bursary studies may lead to academic qualifications, the majority of qualifications that are covered by the SETA funding are occupational qualifications.

What are occupational qualifications?

The Quality Council for Trades and Occupations (QCTO) is the quality council responsible for occupational qualifications and is accessible on the www.qcto.org.za, where there are details such as the accredited Skills Development Providers (SDPs), who may provide accredited training. The QCTO is in the process of reviewing the old qualifications (legacy qualifications), and re-formatting them into the new QCTO format. This format requires theoretical knowledge, skills acquisition, and actual practical work experience.

Once qualifications are finalised, they are registered by the South African Qualifications Authority (SAQA). Each qualification is registered against a level on the National Qualifications Framework (NQF), and by accessing www.saqa.org.za and using the search engine, it is possible to find all of the qualifications that are currently registered. The SAQA website also provides full details of the NQF, which has 10 levels starting from NQF 1, which is equivalent to school Grade 9 (formerly Standard 7) and AET level 4. The occupational qualifications go up to level 8, and levels 9 and 10 are the Masters and PhD Degrees, respectively.

SAQA is also responsible for the National Learner Records Database (NLRD), which is the register of all learner qualifications achieved against qualifications registered with the SAQA. It is also possible to obtain an equivalence for qualifications achieved overseas by making application to SAQA. An extremely useful service is the NQFpedia available here, which is a ‘Standard Glossary of Terms’ describing all terms related to the qualifications and the NQF.

What support is available for SMEs to participate in youth employment and training?

By accessing the sites and interacting with the SETA staff, SMEs should be able to identify what qualifications exist in their sector, and which might benefit their business by improving employee skills and knowledge. The SETA DG funding will in most cases support the cost of the intervention.  The SME will benefit by having employees who are learners motivated by improving their knowledge and skills. In addition, should the SME wish to tender for state business and require a Broad-based Black Economic Empowerment (B-BBEE) rating, these interventions will contribute to the skills development element of the scorecard.

Then there are additional tax benefits that the SME may access, with full details available on the South African Revenue Service (SARS) website. There is a tax relief benefit at the commencement of the learnership, and at the conclusion of the learnership. Apprenticeships are defined under Learnerships and so also qualify for the tax relief.  By using the search facility, details of the tax benefits and guides on learnerships are available here.

A further tax relief is the Employment Tax Incentive (ETI), details of which are available here. The incentive is specifically intended to advance the employment of young people, who currently have the highest unemployment rate. The benefit of taking a young person on a learnership is that this is an unusual situation where SARS will accept ‘double-dipping’, meaning that both tax incentives may be used concurrently. This incentive is currently under review for an extension, and the site should be accessed for updates on the details of the conditions that will be available. Read more about the ETI here.

Caution: Although website addresses are provided above, in all cases it is important to return to the sites for updates before implementation as the details of tax incentives, mandatory and discretionary grants, and even SETA and skills development structures may change.

References   [ + ]

1. Sylvia Hammond A generalist Human Resource Management practitioner of more than 30 years experience, with a Masters in Advanced Labour Law. Registered as MHRP (SABPP) and MSDP (ASDSA), with special interest in skills development. Published author of the JUTA Pocket Companion Understanding the Skills Development Act, various conference papers on aspects of implementation, and journal article on skills development law. Currently Consulting Editor with Portal Publishing managing www.skills-universe.com social network.

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