BEE (B-BBEE) is an important part of doing business in South Africa so its best that you understand every aspect about it. Use this comprehensive guide to ensure your business is compliant and performing at its best.
Black Economic Empowerment (BEE) is a government initiative aimed at increasing equity and uplifting black business owners, stakeholders and employees. The government refers to BEE as ‘positive discrimination’.
BEE is the process by which previously disadvantaged South Africans have been empowered through the transfer of ownership. Compliance with BEE principles are regulated by Codes, which provide details on how BEE should be implemented.
When Black Employment Equity (BEE) was first implemented in the nineties, there was no coherent strategy towards its implementation. When the South African Government gazetted updated Codes of Good Practice at the beginning of 2007, it made the implementation of Black Economic Empowerment (BEE) a legal reality.
Even though most think of Black Employment Equity as BEE, as the process was refined, its name changed to Broad-Based Black Employment Equity (B-BBEE) in order to encompass not just Blacks, but Coloured, Indians and the Chinese populations of South Africa.
Size is relevant in determining the levels of B-BBEE compliance. All organs of state, public entities and any private enterprise that undertakes business with a public entity must implement the Codes.
Any business providing goods or services to another business that is subject to BEE (B-BBEE) compliance may also need to provide evidence of its own BEE (B-BBEE) compliance.
The size of your business is significant in determining the required levels of BEE (B-BBEE) compliance. The Codes provide for three levels of compliance based on the size of your business:
There are three important pieces of legislation that control B-BBEE, namely:
The Employment Equity Act applies to black people, all women and disabled people, in addition, stipulates the requirements for affirmative action to ensure that qualified people from these groups are equitably represented in all occupational categories and levels of a company.
The Act is binding on any business that employs 50 or more staff, or that has an annual turnover of more than R2 million to R25 million (depending on the industry in which you operate).
These provide a framework for improving the skills and employment prospects of black people.
These Acts also make it compulsory for certain employers to contribute a percentage of their payroll (known as the Skills Development Levy) to a fund that can be used to train staff. The current generic B-BBEE scorecard awards points for skills development, but only for that which is over and above the payment of this levy.
This allows any State entity to give preference to black people when awarding contracts. It also aims to boost SME development, create new jobs and promote local enterprises in specific provinces. Currently, the regulations of this Act are based largely on ownership, but this is likely to be revised in order to align it with the B-BBEE Act and Codes.
There are four steps you’ll need to take to ensure you qualify for BEE (B-BBEE), including:
Exempted Micro Enterprises (EMEs), which are businesses with an annual turnover of less than R10 million. This is a new amendment, EMEs were previously businesses with an annual turnover of less than R300 000 and less than five staff members.
Qualifying Small Enterprises (QSEs), which are businesses with an annual turnover between R10 to R50 million.
Medium to large enterprises (M&Ls), are businesses with an annual turnover of more than R50 million.
EMEs are exempt. However, these businesses will automatically receive a level associated with its percentage of black ownership, such as:
The annual turnover must be verified by an accredited accountant, auditor or rating agency.
QSE’s used to be able to choose four out of the seven BEE Scorecard elements to score their points. However, from 2014, QSEs must comply with all 5 elements of the revised BEE (B-BBEE) Scorecard to score their points.
M&L must comply with all 5 elements of the revised BEE (B-BBEE) Scorecard to score their points.
The five pillars of B-BBEE are:
Each of the pillars is worth a certain ‘weight’ in its contribution to B-BBEE compliance. The pillars contribute to overall compliance as follows:
Ownership, skills development and enterprise development are now considered priority pillars and a minimum of 40% compliance is mandatory, in order to achieve level 1 B-BBEE.
It is important to understand the requirements of each pillar.
When determining the level of black ownership, a business will score points based on the
This refers to the proportion of black people who control the direction of the business as well as those in top management who control day-to-day operations.
Skills development measures a business’s investment in the training and development of black employees. Only specific types of learning programmes and learnerships qualify when claiming points on the skills development scorecard.
If the business offers support programmes, then you can claim points on the scorecard. For example, if you donate a vehicle to one of your black company drivers so that he or she can start a delivery company, you qualify.
Companies that spend at least 1% of net profits after tax (NPAT) on Social-Economic Development (SED) are eligible for 5 points under this pillar.
Social-Economic Development (SED), however, is not Corporate Social Investment (CSI). SED’s criteria demands that those being assisted gain long-term access to the economy and receive a lasting benefit. According to the definition in the legislature, any initiative should “facilitate income-generating activities”.
The Codes of Good Practice refers to options that businesses can use in order to evaluate and track their B-BBEE efforts. Within the new B-BBEE regulations companies must meet specific targets. The codes are there to guide businesses into receiving an accurate rating, which it can include on the company profile.
The Codes of Good Practice are legally binding on all state and state-owned entities. These businesses have 10 years to reach this target, which means government will have to use the Codes to measure its B-BBEE compliance when choosing suppliers, granting licences or making concessions. The cascade effect of this focus on B-BBEE compliant companies is that non-compliant businesses will find it hard to grow or maintain their level of business success within South Africa.
On the other hand, private companies will also need to apply the codes if they want to do business with any government enterprise – in order to tender for business, apply for licences and concessions, enter into public-private partnerships or buy state-owned assets.
The Act is broken up into nine Subsections.
Companies must also be aware of Sector Codes, which are an extension of the Codes, but apply within a specified industry sector only. For example, there is a Construction Sector Code (a new draft to appear in 2017), a Property Sector Code, Financial Sector Code and Tourism Sector Code. Sector codes are industry-specific interventions and measures driven by major stakeholders in industries where the codes are developed.
Customers (public and private) will prefer to interact and procure from companies with higher B-BBEE status (for its own recognition), level 1 being the ultimate goal. These are the current B-BBEE status levels:
The South African National Accreditation System (SANAS) is recognised by the South African Government as the single National Accreditation Body that gives formal B-BBEE recognition. A B-BBEE Certificate can be issued by any Verification Agency so long as they are approved to do so by SANAS. The Certificate can only be issued once a full verification has been performed and the documentation presented by your company has been verified. SANAS certificates are a formal recognition that an organisation is competent to perform specific tasks.
Ratings Agencies must perform the assessments strictly according to the guidelines set out by the Department of Trade and Industry (DTI). On successful completion it will issue a certificate with the Level (1-9) of BEE (B-BBEE) compliance appropriate to your enterprise.
The rating process only applies to QSEs and M&L’s:
The best way to structure the management process is as follows:
The Employment Equity Committee needs training, as they are likely to have limited experience in making strategic recommendations to the CEO on these issues. The CEO should sit in the Employment Equity Committee along with someone with HR experience.
Unlike State-owned entities, private companies are free to develop their own procurement policies, which may include different criteria and different weightings to that of the generic B-BBEE scorecard.
When looking for a new partner, specifically for B-BBEE, companies arguably rush through the process. This could leave your business open to having two unaligned partners at the top, trying to force the business into opposite directions, thinking that they each know what’s right for the company.
Every successful business partnership needs three things:
A good partnership won’t happen overnight; it could take you up to 18 months to work out the details with your new B-BBEE partner. So, using it as an eleventh-hour attempt to save your business or when there’s a big tender on the line, might not work out for you.
To be successful, it’s better to go into this process with the right motives. A great B-BBEE partnership is mutually beneficial and based on growth potential for all involved.
Partner with someone who shares your vision and values in business. Both partners need to be clear on their roles within the business and what they will need to contribute towards the business. Like all great partnerships, a B-BBEE partnership is also built on alignment.
You want a partner who will bring critical skills, experience, knowledge or maybe resources to the table. Having a partner who is only fronting can damage your business’ reputation. Fronting is when you have a partner in name only in order to qualify for a higher B-BBEE level.
Networking in the wrong environment can be detrimental, just like networking in the right environment can be advantageous to you and your business.
Ask people you trust for advice or if they know someone who is compatible with you and your work style. You’ll need to approach this as a long-term endeavour as it takes time to find the right person.
Once you’ve found your new partner, structure the best deal possible through a top notch legal team. This will protect both parties if the partnership doesn’t work out. Include roles and responsibilities within the contract, so everyone is accountable, and knows what will result should the endeavour fail.
Published 2 years ago on Oct 10, 2016By Nicole Crampton
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