The new B-BBEE codes are causing quite a stir amongst small businesses. Get to grips with the changes and how these could impact your small business.
The revised Broad-Based Black Economic Empowerment (BBBEE) Codes were gazetted by the Minister of Trade and Industry (DTI) in 2013. These new BEE Codes of Good Practice came into operation on 30 April 2015 and are replacing the existing BEE Codes of Good Practice.
Also, in May 2015 the Department of Trade and Industry issued an unexpected "clarification notice" extending compliance with the new codes (depending on the timing of the business in question’s financial year end) and that broad-based empowerment and employee share ownership schemes will no longer score as much as individual share ownership on the BBBEE scorecard.
Related: How the new B-BBEE codes could affect your small business
It is crucial for businesses to not only understand these codes, but also to consider strategies that would facilitate compliance now. That way, businesses would comply, remain competitive and not run the risk of losing clients or work (suffering losses) due to not being compliant.
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The new method of scoring
Compliance with BBBEE is a turnover based consideration. Businesses are categorised into 3 levels for this purpose namely: Exempt Micro Enterprises (“EME”), Qualifying Small Enterprises (“QSE”) and Generic enterprises (“GENERIC”).
EMS’s compliance is much more lenient than the other levels, as scoring and issuing a certificate is done by way of an auditor’s certificate or affidavit.
QSE’s on the other hand, have relieved compliance in terms of the scorecard while generic businesses require full scorecard compliance (without any relief).
Entities are measured on turnover as set out below:
Annual Turnover ≤ R10 million
Annual Turnover of R10-50 Million
Annual Turnover > 50 Million
Priority items under the new codes
The new codes list three priority elements:
- Skills development
- Enterprise and Supplier Development
A QSE must achieve 40% of the points for two of the three priority elements, with Ownership being a compulsory one. Non-compliance with the thresholds for the above priority elements will result in a penalty by one level on the QSE scorecard.
So, where businesses do not comply with ownership or any of the priority elements they will be penalised. This could now result in many non-compliant businesses. We will now see compliant businesses and non-compliant businesses and nothing in-between.
Related: BEE codes & scorecards
This interpretation of the meaning of this scorecard element remains un-changed but the weighting has been adjusted.
2. Enterprise and Supplier Development:
Essentially, this newly introduced element represents the merger between what was previously known as enterprise development and preferential procurement.
The interpretation of this element has now change to measure the extent to which the business procurers or purchases/supports other businesses in buying / supporting suppliers who are BBBEE compliant.
It also measures the extent to which enterprises and supplier development initiatives are intended to assist the growth and the sustainability of black enterprises.
3. Management Control:
This newly introduced element represents the merger between what was previously known as management control and employment equity. This element measures the effective control of the entity by black people (i.e people from designated groups in terms of the BBBEE Act, importantly people from designated groups means black in the broad sense).
4. Skills Development:
This element measures the extent to which employers carry out initiatives designed to develop the competencies of employees belonging to the aforementioned designated groups.
It also relates to employees internally and to persons being trained or skills otherwise developed externally (in relation to the business). The interpretation of the meaning of this scorecard element remains un-changed.
5. Socio-Economic Development:
In many circles it is also known as the CSI (corporate social investment) element of the scorecard. This measures the support (financial or otherwise) by the business towards more philanthropic causes.
Naturally, the causes in this context must again benefit persons from the designated groups and as such should be distinguished from donations to PBO’s that would qualify for an income tax deduction.
Related: BEE certification
Although it should be distinguished from deductions in terms of income tax, a donation in this context could very well benefit both the businesses’ BBBEE scorecard (under this element) in addition to being income tax deductible.
It is important to consider a BBBEE strategy that suits your business, vision and specific needs best. Once these have been identified it should be implemented by a suitably qualified team of professionals.