THE cost of regulatory compliance is a sensitive topic among small businesses — particularly since the introduction earlier this year of compulsory submissions of annual returns to the Companies and Intellectual Property Registration Office.

Verification of empowerment compliance among small and medium enterprises (SMEs) is no exception and, although government is aware of this issue, no mechanisms have been put in place to assist with the cost of empowerment verification at SME level.

But the debate deals only with the cost of measuring the extent of empowerment contributions and does not even touch on the issue of the cost of implementing empowerment initiatives. With the move towards broad-based empowerment as espoused in the Codes of Good Practice, the seven elements of empowerment will have to be addressed for entities to achieve compliance.

Unlike ownership — which is a one-off transaction provided the empowerment shareholders do not sell their stake — other criteria are ongoing costs that must be incurred on an annual basis for broad-based empowerment targets to be met. These are: management and employment equity, which measure black representation at employee and executive levels; preferential procurement, which redirects a company’s normal procurement spend in favour of empowerment-compliant suppliers; skills development; enterprise development; and corporate social investment.

These last three elements generally measure a company’s annual spending on training, enterprise development initiatives and social development programmes as a percentage of payroll, of earnings before interest, tax, depreciation and amortisation, and of net profit, respectively.

The use of such denominators to a large extent takes care of the fact that every business is different. But just how viable is it for an SME with a total annual payroll of, say, R1m, to spend 1%-3% of its annual payroll on skills development, over and above payment of the skills development levy? In other words, this SME would have to budget up to R40000 a year on skills development.

In addition to cost, there are other obstacles (or, in some cases, perceived obstacles) to skills development spend among SMEs.

Firstly, although small businesses may, in some instances, be able afford direct training costs, either outside or in-house training, they are often unable to shoulder the opportunity cost of their staff being away from their desks to attend training.

This issue is compounded by the fact that it is more time and cost efficient to train numerous people at once, meaning numerous employees are away at once.

For example, in a business with 20 employees, four staff members on training may be equated with the absence of 20% of the company’s workforce.

In addition, small businesses often combine many different roles into one position. The person responsible for doing the books may also be responsible for human resources, office management and administration.

Secondly, SMEs often have insufficient knowledge of how to access skills development programmes through the relevant sector education and training authorities (Setas) in order to benefit from grants, funding or, for those with an annual payroll greater than R500000, skills levy rebates. This obstacle is compounded by the fact that Setas often ignore smaller players, focusing instead on the larger, levy-paying corporates.

The Seta for the chemicals industry, CHIETA, recognises that skills development in SMEs is often inadequately dealt with and that the Setas are not necessarily addressing this issue. In response, it has produced a draft strategy for SMEs to target and respond to specific issues to do with implementation of skills development in small businesses. Hopefully, other Setas will follow suit.

In the interim, however, one possible solution for small businesses, working with their Seta, is to partner with larger providers to offer learnerships: the SME offers the practical training as part of the learnership, while the larger provider provides the more theoretical training. In addition to contributing to skills development on the broad-based scorecard, SMEs will have relief resources on site, making it more feasible for permanent staff to attend training.

Clow-Wilson is research and special projects manager at empowerment ratings and research agency Empowerdex.