When should you spend on skills development? Is it best practice to implement all my skills initiatives at the beginning, middle or end of the year? What are the factors that one should consider?
These are questions that every B-BBEE compliant company has asked at some stage. The answer to these questions is not straight forward and depends greatly on your specific circumstances; however, in this article, I will highlight a few of the important factors one should consider regarding timing and make a conclusion on the subject.
The timing factors to consider:
Under B-BBEE legislation, targets for skills development are calculated based on two parameters which are annual payroll, and employee headcount, at the end of the financial year.
Skills spend, however, is achieved during the financial year when it was incurred and cannot be implemented retrospectively after the financial year-end.
The above means that companies are spending on skills initiatives to achieve a moving target which is only finalised at the end of the financial year. This leaves planners with a choice; either implement skills initiatives early in the year based on financial budgets or wait for more accurate estimations closer to the end of the year which enables spending closer to the exact targets.
In previous articles, I have discussed the benefits of learnerships as a skills development solution and to recap on one of those benefits is that the salaries of learners are recognised as skills spend. The salaries of learners are recognised as skills spend in the financial year when they were incurred. Let’s look at how the salaries of learners can impact costs and skills recognition:
Company “A” finances a 12-month learnership, starting in the first month of the financial year, at a cost of R40 000. The employee earmarked for the learnership is earning a salary of R8 000 per month.
The recognised skills spend under B-BBEE is: R40 000 + (12 x (R8 000)) = R 136 000
The cash cost of the training is: R40 0000
Company “B” finances a 12-month learnership, starting in the last month of the financial year, at a cost of R40 000. The employee earmarked for the learnership is earning a salary of R8 000 per month.
The recognised skills spend under B-BBEE is: R40 000 + (1 x (R8 000)) = R 48 000
The cash cost of the training is: R40 0000
The above examples demonstrate that company B, who is starting their skills initiatives at the end of the financial year, will need to spend an additional R88 000 cashflow on training programmes to achieve the same skills spend recognition. The remaining 11 months’ salary of the employee at company B will roll over to be counted as skills spend in the next financial year. This results therein that every two years company B will have a major cash-outflow towards skills development, while company A will have a more stable spend on skills development each year.
From the above two factors, the following deduction can be made
Depending on the type of funding mechanism you are considering it may affect the start date of your training programmes. Companies looking to apply for discretionary grants from their respective SETA will need to comply with the window periods when applications can be submitted for financing and this will impact the start dates of training.
Each training provider determines their intake periods for new students. FET colleges can differ with their policy on intakes from monthly to once per annum. Most Universities will only take in new students once or twice annually. Remember to take this into consideration during your planning.
Over and above these factors there is a multitude of operational factors also to consider which are not discussed above, but can include the following:
As the above factors clearly indicate, the correct strategy will be different for each company. However, seeing that cash flow is extremely important for the survival of any enterprise especially in this day and time, I would suggest a plan which results in the lowest cashflow requirement.
As discussed above, it is much more accurate to only spend on skills at the end of the financial year, however, this results in a high cash cost to the business. My suggested approach would be to implement roughly three-quarters of training initiatives at the start of the year and then towards the end of the year to top up on the spend which is still required. This should result in accurately achieving the targets while maintaining a stable cashflow throughout the year.
Author: Jean du Plessis
Contact Training Portal Online to talk to one of our experienced consultants who can assist you with implementing an effective skills development solution. Contact Jean at firstname.lastname@example.org