South Africa’s amended Employment Equity Act (EEA), which came into effect at the beginning of last month, will likely reduce the flexibility of businesses in South Africa in responding to market conditions, and their ability to contribute to job creation.
Adapting to the EEA will likely mean higher costs and unnecessarily complex procedures for managing staff.
Centre for Risk Analysis (CRA) polling in March this year found that joblessness was the top issue respondents felt the government should prioritise, with 29.4% choosing this as one of their two top priorities (consistent with CRA polling results over the past decade), followed by illegal immigration (9.1%) and crime and safety (8.5%).
The findings from our latest survey align with economic and employment data. The official unemployment rate increased from 32.9% in the first quarter of 2025 to 33.2% in the second quarter. On the expanded definition, the rate dropped slightly but remains above 40%, at 42.9%, down from 43.1% in the first quarter. These rates rank among the highest in the world for countries that reliably gather such statistics.
Source: Stats SA
High unemployment is a direct result of slow economic growth.
On 12 April 2023 President Cyril Ramaphosa signed into law the amended Employment Equity Act (EEA), which came into effect on 1 September this year. Prior to this, the EEA had already added administration burdens on businesses, requiring them, for example, to analyse workforce demographics and develop employment equity plans.
The amended law imposes further obligations, requiring businesses to comply with sector-specific numerical targets and to obtain a mandatory Employment Equity (EE) Compliance Certificate to secure state contracts. Failing to meet the mandates can result in a fine of up to 10% of a company’s turnover. These administrative tasks divert resources and attention away from core business and strategic initiatives aimed at increasing growth and innovation, thereby hindering the overall growth of South Africa’s economy.
The amended Act empowers the Minister of Employment and Labour to set employment equity targets by economic sector and region. The minister also has the power to regulate the compliance criteria in issuing EE compliance certificates.
The law requires employers with more than 50 employees to submit to the Department of Employment and Labour employment equity plans describing how they will achieve the targets. An updated report must be submitted every year.
In April, the CRA pointed out that “the regulations impose five-year race, gender and disability targets on all private companies with more than 50 employees, as well as all organs of state irrespective of the number of their employees”.
If a company with 100 employees has four employees who fall into the category of foreigner or white male, this company cannot hire another employee of the same group, unless it expands its workforce or lets one of the existing four employees go.
This methodology applies to all races and genders. Companies are encouraged to avoid over-representation of any group. Failure to comply with these sector-specific targets could lead to fines. After the first failure, the maximum fine a company can face is R1.5 million, or 2% of the company’s annual turnover. This increases, until the fourth failure of compliance means a fine of R2.7 million, or 10% of the company’s annual turnover, whichever amount is greatest.
What to do
Chapter Two of the EEA, which applies to all employers and employees, indicates that direct or indirect discrimination on grounds such as race, gender, health status, disability or age is prohibited. This contradicts Chapter Three, which states that employers must implement affirmative action according to the employment equity target for designated groups – identified as black people (Coloured, Indian and Black individuals), women, and individuals with disabilities.
Chapter Three focuses on affirmative action pertaining to designated employers – employers with 50 or more employees or who have an equal or larger annual turnover, indicated in Schedule 4 of the EEA. Employers are required to report on their implementation plan to achieve the given equity target within the five-year time frame. This plan must include objectives for each year, affirmative action measures, numerical goals, the timetable for each year, and internal monitoring and evaluation procedures, and identify individuals charged with monitoring and implementing the plan.
For companies with fewer than 150 employees, the first report must be submitted to the Director General within 12 months of the commencement of the EEA (1 September 2025). Thereafter an update report is required to be submitted every two years on the first working day of October. Companies with 150 or more employees must submit their first report within six months of the EEA’s commencement on 1 September 2025.
The National Employers’ Association of South Africa (NEASA) has identified a few points employers should know and consider regarding the EEA. The start of all employment equity administration is the EEA1 form. This creates a workplace profile indicating the composition of the workforce. There is currently no legal obligation on employees to classify themselves on the EEA1 form. If employees refuse to classify themselves or do so inaccurately, the Act then requires the employer to classify their employees. Employers may use historical or current data to classify their employees.
According to NEASA’s advice to businesses, employers should add a condition to the EEA1 form that employers are not accountable for the classifications on the form. Employers should also state on their EEA12 form that historical and current data are used to classify their employees and that employers are not accountable for the classification of their employees. Targets should be set in line with business realities and within the EEA13 form, employers should state that the 5-year targets are only set due to the obligatory nature of EEA and that the targets cannot be realistically met.
Currently these methods proposed by NEASA are legally sound as there is no definitive legal system of racial classification. The problem with these methods is: what happens when the question is posed to the court; would the court agree to these methods? Or would they reinstate the Population Registration Act (repealed in 1991), classifying individuals in South Africa in accordance with their racial characteristics? Businesses in South Africa are caught between a rock and a hard place, with limited room for growth and administrative constraints with which they now need to comply.
BUSA notices
On 22 September Business Unity South Africa (BUSA) initiated legal action against the published Employment Equity Sector Targets that took effect on 1 September. It was made clear in their statement that they were not acting against EEA or the principle of the numerical targets set out in Section 15A. They were only taking legal action against the sector targets set out by Section 15A within EEA. Khulekani Mathe, CEO of BUSA, said: “The need for transformation is urgent, but urgency must not become recklessness. We’re acting now to protect the credibility of equity policy. Unworkable targets do not advance transformation. They deepen frustration and erode trust in public policy.”
Some of the key issues BUSA raises are the limited consultation times employers were given, insufficient information with regards to the methodology used in acquiring the numerical targets, limited assessment done across industry-specific realities to determine whether targets could be reached, regulatory confusion between EEA and Broad-Based Black Economic Empowerment sector codes, and non-acknowledgement among subsectors’ operational, geographic and structural differences.
BUSA further stated that rushed and procedurally irregular processes not only fail the test of legality, but also set back the transformation imperative by making compliance unenforceable and impractical for employers. “Transformation is a national imperative, and to succeed, it must be implemented in a way that builds confidence, promotes dialogue, and delivers results that are both meaningful and sustainable.”
Should the government continue to pursue policies that deter investment and divert crucial business resources away from strategic growth, it could lead to an even more significant slowdown in economic growth. This is directly linked to the risk of increased unemployment.
The compliance costs and concerns surrounding the EEA will cause difficulties for companies, not only in creating new jobs but also in maintaining their current workforce. Rather than fostering an environment for strategic growth, the heavy focus on administrative compliance threatens the private sector: the primary driver of job creation. This political climate, combined with the high costs of compliance and legislative uncertainty, could also hasten continued disinvestment. Both domestic and international businesses may opt to reduce their presence in South Africa, which would further exacerbate unemployment.
The government might interpret the stagnant economic growth as a sign that its policies, like EEA, need to be applied with more “vigour,” rather than being reconsidered. This misguided approach will lead to a vicious cycle where policies are intended to transform the economy but instead hinder its progress.
As a consequence of the EEA, businesses in South Africa have less flexibility, and their capacity to employ more people based on merit is compromised by their having to deal with the volatile business environment created by the regulations set out in the employment “equity” legislation.
For companies to adapt to the EEA will likely mean higher costs, and unnecessarily complex calculations when hiring and firing staff.
[Image: Gerd Altmann from Pixabay]
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