The YES B-BBEE incentive introduced by the Department of Trade, Industry and Industry is arguably one of the most successful incentives introduced in the past 15 to 20 years.
As the incentive gains traction, it is worth interrogating two elements: absorption and alignment with the national minimum wage.
For those not familiar with the incentive, it was gazetted in 2018 and effectively allows organisations to move up one or two levels on their B-BBEE scorecard through the creation of a certain number of youth jobs.
Due to a high degree of flexibility in implementation, undemanding job creation targets and low absorption requirements, the incentive has seen nearly 2,000 businesses sign up. Many have returned for multiple years of participation.
The average YES implementation – including for multinationals – would require the creation of fewer than 15 jobs earning the national minimum wage, and only one of these youths would need to achieve permanent employment at the end of the 12 months.
In essence, it is an R825,000 investment for a full level on your B-BBEE scorecard.
Quality vs quantity of jobs
When YES was launched in the market, it was positioned as a tool to ultimately unlock large-scale employment. In reality, it is constrained by private sector funding and B-BBEE legislation driving its targets – this has meant that the incentive typically creates between 25,000 and 30,000 jobs per year.
While large-scale employment is critical for South Africa, a focus on quality jobs is equally important. Strategic sectors such as technology, tourism, healthcare, renewable energy, water and infrastructure are all crying out for capacity.
One of the great aspects of YES is that you don’t need to employ the youth inside your organisation to “make up the numbers”, but can be strategic about where you deploy them.
A look at the clients we are engaging with suggests that many are starting to be quite innovative around integrating youth into their value chains, enterprise and supplier development initiatives or other strategic industries.
We believe organisations are viewing YES as less transactional and more strategic – a trend we hope continues.
The national minimum wage debate
For anybody who has had to do interviews and recruitment for YES programmes, it is heartbreaking to see young people with degrees – including B.Comms, LLBs, Engineering and Medical – applying for work opportunities to earn R4,407 per month.
While the YES 12-month work experience is critical to providing access to the market and helping youth break the so-called “experience trap”, we are not going to unlock quality talent by paying the national minimum wage.
First, from a mental health perspective, recent research has shown that 73% of working South Africans are earning less than R6,000 per month. When that statistic is viewed alongside research out of Unicef showing 65-73% of South Africans are struggling with mental health issues that cost the South African economy R100bn per year, we started to appreciate the steep change that is required to empower youth.
Second, from a logistics level, a major challenge we face in South Africa is social mobility. A middle-class university graduate with access to a car, a laptop and data will find it far easier to access work opportunities than a youth who must navigate multiple taxis to get to and from work and is constantly weighing up data and transport costs while trying to gain work experience.
Third, young people will, as a result of the experience gained through YES programmes, be able to move to better-paying positions – often before their 12-month contract expires.
As a cost consideration, a youth who drops off before the eight-month mark needs to be replaced by another with a new 12-month fixed-term contract. This leaves you with a replacement cost of R50,000 if the youth is struggling to get to and from work.
The Employment Tax Incentive
A topic that has been bubbling under for those implementing YES programmes is the issue around the Employment Tax Incentive (ETI).
The ETI is a South African Revenue Service (Sars) incentive aimed at encouraging youth employment by offering a payroll recovery for those under the age of 29 and under R6,500 per month.
It works on a sliding scale and, in practical terms, means that a youth employed on a YES programme at the national minimum wage effectively only pays R3,407, having received a rebate of R1,000 per month.
Unfortunately, the ETI has become subject to significant industry abuse and Sars has aggressively clamped down on claims in this space. Based on our industry feedback, there are hundreds of millions of rands of ETI claims being withheld by Sars.
Due to its flexibility, YES allows organisations to fund youth who don’t sit on their payroll, and this has created a grey area for Sars and ETI claims.
Sars, in essence, is arguing that despite funding youth jobs, the youth are not on your payroll so would not be eligible for ETI. At the same time, they are arguing that the employers of record for the youth are not the creators of jobs as they receive specific funding for these positions and similarly are not entitled to ETI.
The other concern is that the national minimum wage is rising faster than the ETI brackets.
This issue is creating a lot of frustration in the industry and for every R100m of withheld ETI, this holds back the creation of at least 1,800 jobs per year. Ultimately, this issue needs to be addressed to unlock further jobs.
YES has been a success and has proven that innovative legislation and coordination between the public and private sectors can create jobs. We just need to ensure that we create jobs the economy needs.
And while we are at it, review the real cost of adhering to paying only the national minimum wage in a short-sighted attempt to keep overheads low. DM