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The rollout of the updated Broad Based Black Economic Empowerment (B-BBEE) codes that will come into effect on 1 May 2015 is evidently much stricter in its scoring and implications for business owners than the older codes. So what are the critical aspects and changes that business owners and directors should be aware of?
The revised codes of Good Practice indicate, that any company that has a revenue of more than R10-million will be most affected and will have to make imperative changes of higher priority status than that which was made before in order to be BEE compliant.
The categories for compliance have been condensed from seven categories to five categories, three of which are regarded as compulsory and must be adhered to in order to be compliant.
The three high priority categories are Ownership, Skills Development and Enterprise and Supplier Development. The broad-based BEE levels range from one (the highest) down to eight or non-compliance.
Four Reasons Why Being B-BBEE Compliant is Important
Ensuring that your business complies with the B-BBEE Act and codes remains completely voluntary; however, in order for a business to thrive in this day and age, adhering to the B-BBEE Act and codes is vital.
- Companies that want to partake in business with any kind of government body – be it, apply for a tender, purchase a state-owned asset or enter a public-private partnership – will have to ensure that they are 100% BEE compliant.
- Being BEE compliant is not only beneficial if you want to do business in the public sector, private companies that engage in business with each other may also reap the benefits of being compliant. Preferential procurement in private companies has an obvious knock on effect throughout the chain of supply which affects all business entities.
- If a private company attains a good scorecard and achieves a good BEE level, this will ensure that no business opportunities are lost to competitors that are BEE compliant; in addition being compliant may result in a chance to gain business from non-compliant competitors.
- And lastly, if you have a B-BBEE Certificate, larger businesses are incentivised to do business with you because it improves their own B-BBEE score.
Changes in the B-BBEE Act:
Exempt Micro Enterprises:
Under the new Act, companies that have an annual total revenue of R10 million, or less, qualify as Exempt micro enterprises (EME).
EME’s will benefit from the new changes in the B-BBEE Act as they are deemed to automatically have a B-BBEE status of a level four contributor with a 100% recognition level, even if it has no black ownership. However if there is 100% black ownership the status is enhanced to a level one contributor with a 135% recognition level.
Qualifying Small Enterprises
Under the new Act, companies that have an annual total revenue of between R10-million and R50-million qualify as Qualifying Small Enterprises (QSE).
QSE’s are required to comply with all five elements of the new codes and can no longer select only four elements to comply with. It is worth noting that, if a company is 51% black-owned, the company will automatically gain a level two status (or level one if is 100% black-owned).
Large Generic Sector
A large company is regarded as one that has an annual turnover of R50-million or more.
Large companies must be sure to establish and implement structured B-BBEE plans to ensure that all requirements are met. Priority elements such as skills development will become an important and costly factor; therefore it would be advised for a large company to undergo a cost analysis in order to see that all requirements are met in terms of the new codes.
What Has Changed?
There are a few aspects that are evidently more stressed upon in the new codes and are linked to the three respective priority elements mentioned previously.
- In the new Act, a concerted effort is made to improve economic opportunities by awarding more points in the ‘ownership’ element than in the previous BEE codes.
- A company will also gain more points if they interact with businesses that are involved with employment and social change.
- As mentioned previously, ownership is regarded as one of the priority elements and non-compliance with the subminimum requirements will result in the company’s rating going down a full level. In the updated codes it is quite evident that chances of achieving a good rating, without an ownership deal, are practically nonexistent. This is directed to and mostly applies to larger companies that have an annual turnover of more than R50-million as well as Qualifying Small Enterprises (QSE), with Exempt Micro Enterprises being least affected. The new act encourages companies to enter into deals with groups that are not necessarily 100% black owned, the changes in summation allows a company that is 51% or more black owned to essentially be treated as a 100% black owned company which increases a company’s score.
- The way that job creation is scored has changed; a company that provides learnership (e.g. Graduate programmes and Internships) and thereafter employs the graduate will receive more BEE points. Therefore unlike the old codes that only promoted job creation, the new codes encourage both learnership and job creation
- In addition the new BEE codes greater emphasises skills development. In the old codes only three percent of payroll was spent on skills development, however in the new codes six percent of payroll must be spent on skills development which is not only exclusive to employees but to anyone the owner feels fit.
- One of the biggest changes in the broad-based BEE Act is that ‘fronting’ is now officially being recognised as a criminal act. Fronting is when businesses pretend to be empowered, but are not, and attempt to circumvent the BEE act and codes.
If found guilty, the consequences for fronting schemes is either a fine of up to 10% of the company’s turnover or up to 10 years in imprisonment.
Understanding the new codes and the business risks that they bring are of utmost importance for business owners and directors.
Outsourced CFO and its partners would gladly assist in analysing your company’s scorecard, helping you understand the new codes and sector charters and assist you in planning for a bright future of doing business in South Africa.