Employment Equity: Does It Apply to Your Small Business? (Probably Not, and That's New)

Employment equity is one of the compliance topics small business owners most commonly worry about unnecessarily — and, until recently, sometimes had genuine reason to worry about even at a fairly modest size, because of a turnover-based test that has now been removed. Understanding exactly where the line sits today matters, because it moved.

What changed on 1 January 2025

Before the Employment Equity Amendment Act came into effect, a business could become a "designated employer" under the Employment Equity Act either by headcount or by exceeding a specific annual turnover threshold — meaning a smaller, highly profitable business with relatively few staff could still be caught by the Act's obligations. That dual test is gone. Since 1 January 2025, a designated employer is defined purely by employee count: 50 or more employees, or any organ of state regardless of size. Turnover no longer factors into the definition at all.

The Department of Employment and Labour has stated this change explicitly as intended to reduce the regulatory burden on small business — employers with 1 to 49 employees are no longer required to comply with Chapter III of the Act, meaning no obligation to prepare an Employment Equity Plan or submit annual EE reports, regardless of how profitable or how long-established the business is.

What this means practically for most readers of this series

If your business employs fewer than 50 people, you are not a designated employer under the current rules, and the Act's core planning and reporting obligations simply don't apply to you. This is worth knowing clearly, since outdated advice (including some still circulating online, referencing the old turnover test) can leave a genuinely small employer believing they need an Employment Equity Plan they are, under current law, explicitly exempted from.

This does not mean employment discrimination law disappears for smaller employers — general protections against unfair discrimination in employment, covered under other parts of South African labour law, still apply to businesses of any size. What's specifically removed for smaller employers is the formal EE Plan and annual reporting machinery the Act imposes on designated employers.

What actually changes once you cross 50 employees

A business genuinely growing toward or past the 50-employee threshold takes on real, substantive obligations:

• Sector-specific numerical targets now apply — the Amendment Act empowers the Minister to set five-year numerical targets across 18 economic sectors, covering the period 1 September 2025 to 31 August 2030, spanning four occupational levels (Top Management, Senior Management, Professionally Qualified/Middle Management, and Skilled Technical roles).
• An Employment Equity Plan aligned to those sector targets must be developed and implemented, replacing a more generic, self-set target approach with specific numbers a designated employer in that sector is expected to work toward.
• The disability employment target has increased, from 2% to 3%, as part of the same reforms.
• An EE Compliance Certificate is now a prerequisite for accessing state contracts under section 53 of the Act — a genuinely significant commercial consideration for any designated employer that does, or wants to do, business with government.
• Penalties for non-compliance can reach 10% of annual turnover — a genuinely serious exposure for a business of the size this threshold captures, making this an obligation worth taking seriously rather than treating as a low-priority filing task.

Planning ahead if your business is approaching the threshold

A business genuinely growing toward 50 employees should start thinking about employment equity obligations before actually crossing the line, not the week after — an Employment Equity Plan aligned to sector-specific targets is a genuine undertaking, not something assembled overnight once the 50th employee is hired. This includes understanding which of the 18 sector categories your business falls into, since the specific numerical targets differ by sector, and beginning to track the workforce composition data an eventual EE Plan and report will need.

Don't confuse this with other compliance obligations that do apply regardless of size

Employment equity's headcount threshold is specific to this Act — it doesn't affect the other employer obligations this series has covered that apply regardless of size, such as the written particulars every employer must provide from day one or UIF and COIDA registration the moment you hire your first employee. A business well under the 50-employee threshold is still a genuine, fully obligated employer under those other frameworks — the Employment Equity threshold is one specific carve-out, not a general "small employers are exempt from labour law" principle.

Sources: the Department of Employment and Labour's published guidance on the Employment Equity Amendment Act, 2022 (effective 1 January 2025) — the pure headcount-based designated employer definition (50+ employees, turnover threshold removed), the explicit relief from Chapter III obligations for employers with 1-49 employees, the five-year sector-specific numerical targets (1 September 2025 to 31 August 2030) across 18 sectors and four occupational levels, the increased 3% disability target, the section 53 EE Compliance Certificate requirement for state contracts, and penalties of up to 10% of annual turnover for non-compliant designated employers. This is general information, not legal advice — a business approaching or exceeding the 50-employee threshold should get specific guidance from a labour law practitioner or employment equity consultant on its sector-specific targets and plan requirements.

A worked example

A growing services business with 35 employees and strong annual turnover previously worried, under the old rules, that its turnover alone might make it a designated employer despite its modest headcount — and had budgeted for a compliance consultant to draft an Employment Equity Plan out of caution. Under the current rules, effective from 1 January 2025, turnover is irrelevant to the designated-employer test; with 35 employees, this business is clearly and explicitly below the 50-employee threshold and owes no Chapter III obligations at all, regardless of how profitable it is. The consulting spend earmarked for EE compliance was, under current law, unnecessary — though the business sensibly keeps an eye on its headcount as it continues hiring, since crossing 50 employees would genuinely change its position.

Frequently asked

How is the 50-employee threshold counted — total staff, or full-time equivalent? The threshold is based on the employer's actual number of employees rather than a full-time-equivalent calculation, though the specific counting methodology for part-time and casual staff is worth confirming for a business genuinely close to the line rather than assuming either way.

Does a business with multiple branches count employees per branch or across the whole business? Designated employer status is generally assessed at the level of the employer as a legal entity, meaning employees across all branches or locations of the same employer typically count toward the total, not each site counted separately.

Can a business voluntarily comply with Employment Equity Act requirements even if under the threshold? Yes — nothing prevents a smaller employer from voluntarily adopting genuine diversity and equity practices, and some choose to for their own values-driven reasons or to strengthen relationships with larger clients who do have formal EE obligations, even without a legal requirement to do so.

What happens if a business's headcount fluctuates around the 50-employee line? A business genuinely hovering near the threshold should track this carefully, since crossing into designated-employer territory (even temporarily) can trigger obligations — this is a genuine grey area worth specific advice on rather than assuming a brief dip back under 50 immediately removes any obligation already triggered.

Do the sector-specific targets apply equally to every industry? No — the targets are specifically set per sector across 18 defined economic sectors, meaning the actual numerical targets a designated employer needs to work toward depend on which sector classification applies to their business, not a single uniform national target.

Does a business need to reapply or reregister once it crosses 50 employees? There's no separate "registration" as a designated employer to apply for — the obligations attach automatically once the headcount threshold is met, meaning the responsibility to begin preparing an Employment Equity Plan and reporting sits with the employer to recognise and act on, rather than waiting for a notification from the Department.

What records should a business under 50 employees keep in case it later crosses the threshold? While not legally required to maintain formal EE records below the threshold, keeping basic workforce composition data as the business grows makes the eventual transition into designated-employer obligations considerably smoother than starting from scratch once the threshold is actually crossed.