Preparing your business for the new BEE codes
New B-BBEE codes come into effect next year which means SMEs should be prepared as the changes will mean rethinking their strategies if they want to maintain favourable BEE ratings.
The codes were first proposed in 2012 to address some of the shortfalls identified in the existing B-BBEE codes and to offer greater clarity.
The public was invited for comment and following that, a transitional period was given to businesses to familiarise themselves with the new codes before they are implemented on 30 April 2015.
The main reason for amending the codes, according to the Department of Trade and Industry, is to do away with the formalistic tick-box approach to B-BBEE that has generally been adopted by corporates.
Concerns have however been raised across economic sectors with some business organisations saying that the new codes could be counter-productive and may further hamper the growth of small and medium-sized businesses.
• See also: Brush up on your BEE knowledge
Below are the changes and their implications that every SMEs should be aware of:
Revised BEE codes: The highlights
- Code’s elements consolidated to five in generic scorecard
- Ownership points broadened to include designated groups in the main points
- Exempted micro-enterprises and qualifying small enterprises thresholds adjusted
- All companies to comply with all five elements
- Revised qualification points for BBBEE recognition
- New priority elements – Ownership, skills development and supplier development
- 100% black-owned enterprises qualify as level 1
- 50% and above black owned qualify as level 2
- BBBEE employment equity elements aligned with Employment Equity Act
- Qualifying small enterprises to comply with all five element
Exempted micro-enterprises and qualifying small enterprises thresholds changes include:
- The number of points required to achieve a better B-BBEE status has increased with the total score of the B-BBEE Codes of Good Practice across all the elements increasing from 100 to 105 points.
- Entities with a turnover of less than R10 million (currently R5 million) qualify as exempted micro-enterprises. They qualify as Level 1 B-BBEE contributors if they are 100% black-owned, Level 2 if they are more than 50% black-owned.
- Entities with a turnover between R10 million to R50 million (currently R5 million to R35 million) qualify as qualifying small enterprises (QSEs).
Changes in the generic scorecard levels include:
- Automatic discounting of an entity’s level rating where the sub-minimum for priority pillars of the scorecard has not been met.
- Qualifying small enterprises must comply with all pillars of the scorecard, including ownership.
- All companies, except exempted micro enterprises, are required to comply with all five elements of the B-BBEE scorecard.
- The only requirement in the revised codes is a sworn affidavit confirming the turnover and the percentage of black ownership.
Changes to the B-BBEE Codes of Good Conduct’s elements include:
The revised codes have reduced the scorecard elements from seven to five. These elements are ownership composition, skills development, enterprise and supplier development, management and control, and socio-economic development.
Employment equity was combined into one element with management and control, and preferential procurement was also combined with enterprise development into one element.
Ownership, skills development, enterprise and supplier development are now being regarded as priority elements.
Large entities are now required to comply with all three priority elements while qualifying small enterprises must comply with at least two of the three priority elements, one of which being the ownership priority element.
Revised qualification points:
1. Ownership: This looks at the extent to which shares are held by blacks. The sub-minimum requirement for ownership is 40% of net value. This category will contribute 25 points towards the total score, currently it’s 20 points.
2. Skills development: The sub-minimum requirement is 40% of the total weighting points of skills development. The purpose of this is to drive economic growth and social development that enriches creation of decent work and sustainable livelihoods.
Companies are also awarded five bonus points if 100% of black learners in the company’s learnership programmes are absorbed into employment with the business after undergoing training. This category will contributes 20 points, currently it’s 15 points.
3. Enterprise and supplier development: The sub-minimum requirement is 40% for each of the following three categories; preferential procurement, supplier development and enterprise development. It counts for 40 points of which 23 are awarded to majority black ownership. It is the highest contributor among all elements. Currently this category contributes 15 points.
4. Management and control: This is a measurement of the management make-up in the company, according to the codes at least 10% of managerial positions must be awarded to blacks. It currently contributes 10 points, but will go up to 15 points.
5. Socio Economic development: This is for contributions made by businesses to needy local communities. It has been reduced to 5 points. It currently counts for 25 points.