Wrap Your Head Around the Mechanics of the Skills Development Levy

As an employer, getting the Skills Development Levy (SDL) to work for you means that you must first acquire knowledge of how it actually functions. South African organisations have a tendency to treat the Skills Development Levy simply as just another SARS tax invoice line item, which is more often than not forgotten.

But when one has a proper understanding of the mechanics of the SDL and how to manage it, one will realise that it is strategically put in place as a funding mechanism that is not only a tax requirement, but that also offers a path towards bolstering skills development whereby corporate training can be subsidised. It therefore goes without saying that if one properly understands how the Levy works, what the SETA requirements are and how one can co-ordinate the required documentation, one will be in a position to claim back a significant amount of these funds.

What Are The Costs of The Skills Development Levy?

Governed by the Skills Development Levies Act, the Levy is payable monthly to the South African Revenue Service (SARS). The payment mechanism used for this is the EMP201 Form.

Who Is Required to Pay?

• The Payment Threshold: Those employers whose anticipated total annual salaries (which include gross salaries, wages, overtime, leave pay and bonuses, as well as any commissions) exceed the total of R500 000 over the course of the following 12 months are required by law to register for and pay the Skills Development Levy.
• The Levy Calculation: The levy is calculated at 1% of an employer’s total annual payroll.
• Employers who are Exempt from Paying the SDL: Employers whose estimated annual salaries fall below R500 000, government departments, public benefit organisations (PBOs) and certain public entities and municipalities are not required to pay the Skills Development Levy.

The Workplace Skills Plan and the Annual Training Report

Employers must complete and submit two critical documents to their relevant Sector Education and Training Authority (SETA) on an annual basis by 30 April to benefit from the SETA grant recovery process. These are critical compliance submissions you simply cannot do without.

1. The Workplace Skills Plan (WSP)

The Workplace Skills Plan (WSP) is a document that provides a broad outline of specific training programmes that have been planned for the upcoming financial year in terms of skills gaps that have been identified within the organisation.

2. The Annual Training Report (ATR)

The Annual Training Report (ATR) is a formal representation of training that was conducted over the previous financial year. It documents training spend and training delivery methods, as well as employee demographics and attendance metrics, which are shown in line with those training goals that were set down for the preceding year.

Understanding The Mechanics of Mandatory and Discretionary Grants

Understanding the mechanics of Mandatory and Discretionary Grants starts with a good grasp of how the Skills Development Levy funds are split: 20% of all levies collected are given to the National Skills Fund. The remaining 80% is allocated to the relevant SETA that the employer falls under. Reclaiming funds via the Mandatory Grant requires an employer to be registered for the SDL, have up-to-date payments, and a clear indication that they have diligently implemented the previous year’s plan through the submission of the Annual Training Report (ATR). The Workplace Skills Plan (WSP) for the upcoming financial year must be submitted on or before 30 April every year. Employers who have less than 50 staff can make use of a simplified form. Should it be required, upon written request, a one-month extension may be granted by a SETA.

Upon SETA approval, 20% of the levy amount that the employer pays during the financial year is paid back to the employer via the Mandatory Grant, usually every quarter. However, should an employer miss the mandatory grant deadline, the SETA then transfers the funds into the discretionary grant pool by 15 August. All SETAs publish an annual Discretionary Grants Policy. This policy includes sector allocation criteria and requires that at least 80% of discretionary funds are allocated to PIVOTAL programmes (professional, vocational, technical, and academic learning) aimed at achieving formal qualifications. Discretionary Grants are available to applicants across a broad spectrum, which also includes non-levy-paying organisations, NGOs, co-operatives and small, medium and micro enterprises.

SETAs must provide easily accessible application forms to enable smooth access. Businesses that employ less than 50 staff are exempted from having to complete and submit full PIVOTAL plans and reports. Application requirements and rules may vary according to different industries. To illustrate, TETA opens a single national funding window on an annual basis for all stakeholders. merSETA requires that WSP and ATR submissions go through a consultation and sign-off process with recognised official trade unions or skills development facilitators/training committees.

What Can Businesses That Fall Below the Threshold Apply For?

Even though smaller businesses that are exempt from the Skills Development Levy cannot claim a 20% Mandatory Grant, they are not left out in the cold or fully excluded from applying. This takes place via:

• Voluntary SETA Registration: Smaller businesses may register with their relevant industry SETA.
• Discretionary Grant Funding: Some SETAs may give non-levy-paying small, medium, and micro enterprises (SMMEs) the opportunity to apply for Discretionary Grants, subsidised programmes and funded learnerships.
• B-BBEE Scorecard Benefits: Smaller companies whose total revenue is R10 million or less qualify as Exempted Micro Enterprises (EMEs) and do not require a B-BBEE Scorecard.

What Constitutes Training?

Employers often mistakenly assume that only long-term university degrees or formal qualifications constitute actual training. Yet, SETAs take a wide range of learning interventions into account:

• Short Courses/Workshops: Specialised professional development initiatives, compliance courses such as First Aid, OHS, or Fire Fighting and technical skills training programmes.
• Accredited and Non-Accredited Training: Both accredited qualifications and non-accredited training programmes count, provided that attendance records and invoices are documented.
• In-House Training: In-house training sessions conducted by internal subject matter experts, which should include a formal syllabus, attendance register, and training evaluation.
• Learnerships, Internships and Apprenticeships: Work-integrated learning programmes that combine theory and practical workplace experience.
• Bursaries and Qualifications: Higher education diplomas, degrees, or trade qualifications that are paid for by the employer.

Avoid These Mistakes So You Don’t Lose Out

Losing out on receiving your 20% Mandatory Grant or failing to qualify for a Discretionary Grant often boils down to avoiding simple administrative issues such as:

1. Missing the Deadline (30 April): Failing to submit by the deadline date results in the automatic disqualification of the Mandatory Grant for the entire financial year unless a one-month extension has been applied for and granted by the relevant SETA.
2. Incorrect SETA Allocation: Using the wrong SETA SARS code in line with what has been stipulated when registering for the Levy will result in your WSP/ATR submission being rejected.
3. Inadequate Record-Keeping: Failure to provide original attendance registers, proof of payment details, applicable invoices, copies of employee identity documents, and certificates of completion in line with the ATR.
4. Major Discrepancies Between the WSP and ATR: Failure to account for discrepancies between initiatives planned in the WSP and what was actually delivered according to the ATR.
5. SARS Non-Compliance: Outstanding tax returns, incorrect filing of the EMP201 Form, or incorrect banking details that block the deployment of grant payouts.

The Skills Development Levy and its mechanics are not difficult to understand. But the aim is to make sure that you are geared up to get the most out of the process.