If your business employs 50 or more people, the current employment equity reporting cycle matters more than any before it. For the first time, employers’ annual reports, due by 15 January 2027, will be assessed against the numerical targets in their employment equity plans, which must be aligned with the new five-year sectoral targets.
Missing those targets without a justifiable reason can result in fines. Without a compliance certificate, businesses also cannot contract with the state.
Who is affected?
The Employment Equity Amendment Act 4 of 2022, in force since 1 January 2025, changed the definition of a “designated employer”. Designated employers are now:
- employers with 50 or more employees; and
- organs of state, regardless of size.
The previous turnover thresholds no longer apply. An employer with fewer than 50 employees is not a designated employer, however high its turnover, although it may volunteer to comply.
How the sectoral targets work
The Minister of Employment and Labour has set five-year numerical targets for 18 economic sectors, including finance, manufacturing, construction, retail, ICT, professional services and agriculture. The targets apply to the four upper occupational levels: top management, senior management, professionally qualified and skilled technical. Separate targets apply to people with disabilities.
The current five-year period runs from 1 September 2025 to 31 August 2030. Designated employers had to:
- complete a workplace analysis and prepare or amend their employment equity plans to align with the sectoral targets; and
- set annual numerical targets progressing towards the five-year sector targets.
The first reporting cycle under the new regime closed on 15 January 2026. In the current cycle, which opened on 1 September 2026 and closes on 15 January 2027, employers will be assessed against their annual targets for the first time.
Missing a target: justifiable reasons
An employer that does not meet its targets will not be in breach if it can show a justifiable reason. The regulations list the reasons that may be raised, including:
- insufficient recruitment or promotion opportunities, for example because of a hiring freeze or low staff turnover;
- insufficient suitably qualified people from designated groups despite reasonable efforts;
- the effect of a CCMA award or court order;
- a merger, acquisition or business transfer; and
- the impact of economic conditions on the business.
The key is evidence. Employers must keep records of vacancies, recruitment processes, shortlists, appointments and the business reasons for decisions. A reason asserted after the event, without documentation, is unlikely to succeed.
Compliance certificates and state contracts
Section 53 of the Employment Equity Act provides that an organ of state may only contract with an employer that holds a certificate of compliance issued by the Department of Employment and Labour. Certificates are valid for 12 months. To obtain one, a designated employer must, among other things:
- have submitted its annual employment equity report;
- have complied with its sectoral targets or have a justifiable reason for not doing so;
- have no finding of unfair discrimination against it by the CCMA or a court in the previous 12 months; and
- comply with the National Minimum Wage Act.
Businesses that supply government, state-owned companies or municipalities, or that subcontract on public projects, should treat employment equity compliance as a commercial issue.
Penalties
Where the Director-General finds that an employer has failed to meet its targets without a justifiable reason, the matter may be referred to the Labour Court or a fine imposed under the Act. Fines for serious contraventions can reach the greater of a fixed amount or a percentage of annual turnover, and increase for repeat contraventions.
The court challenge
Employer organisations Sakeliga and the National Employers’ Association of South Africa (NEASA) have challenged the constitutionality of the sectoral targets. Their urgent applications were unsuccessful, and in 2026 the Constitutional Court refused them leave to appeal against the refusal of urgent relief. Their review, seeking to set aside the relevant provisions, is continuing in the ordinary course.
Until a court rules otherwise, the targets apply. Employers should not delay compliance in the hope that the challenge succeeds.
What to do now
- Confirm whether you are a designated employer and which sector or sectors apply to you.
- Review your employment equity plan and annual targets against the sectoral targets.
- Consult your employment equity committee and employees as the Act requires.
- Build an evidence file for any target you are unlikely to meet.
- Prepare and submit your report before 15 January 2027.
- Apply for your compliance certificate if you contract, or plan to contract, with the state.
- Check your contracts and tenders for employment equity warranties.
How O’Reilly Law can help
We advise employers on employment equity plans, sectoral targets, justifiable reasons, compliance certificates and Department of Employment and Labour inspections, and on employment equity issues in mergers, acquisitions and public sector contracts. Contact us to review your position before the reporting deadline.
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This article is general information and not legal advice. Correct as at October 2026.