Just as computer software needs to be updated regularly to maximise its performance, so too do the policies and practices around Broad-based Black Economic Empowerment (or B-BBEE, also known as BEE). Since its inception in 2003, BEE has undergone a number of refinements – including the development of the Codes of Good Practice in 2007, its revision in 2013, and the more recent changes to these codes which were gazetted on 31 May 2019 and will come into effect on 01 December 2019.
Sergey Bashala is Managing Director at Metanoia Ratings (Pty) Ltd, a SANAS Accredited BEE Verification Agency. He says, “Achieving a good BEE score is a business imperative for anyone in South Africa. While there is no legislation for private businesses to comply with BEE, anyone who works with government entities, agencies and organs of the state – directly or indirectly – will need to strive for a good BEE rating to maintain the work they currently have and for future opportunities, as this is a requirement to show a company’s contribution towards transformation.”
Sergey highlights three key changes within the revised BEE codes which businesses should be especially aware of, based on the potential impact they can have on a company’s BEE score. These are as follows:
Skills Development
The previous skills development scorecard set a target of 6% of payroll to be spent on training Black people (which refers to African, Coloured, Indian or Chinese South Africans). The revised scorecard has adjusted this target to 3.5% of payroll being spent on training Black people, with a split target of 2.5% of payroll being spent on bursaries. The funding of bursaries in this manner will be used to help finance the outcomes of the #FeesMustFall campaign.
These revised targets are not limited to a company’s employees. As Sergey clarifies, “Skills development on the old codes used to be spend for only Black employees, and was then amended to skills spend for Black people not restricted to employees of the company. This gives more people skills and an opportunity to knock on a door and say I have this qualification, and therefore hopefully a greater chance for them to secure employment.”
Absorption
Sergey explains that the old BEE codes led to a number of people in learnership programmes becoming professional learners, who were never employed and given an opportunity to use their skills and knowledge. The updated BEE codes new definition of ‘absorption’ counteracts this trend. Absorption is when learners are given a permanent contract with a company after completion of their 12 months learnership. This earns the company bonus points for their BEE scorecard, and is based on the 5% target not accounting for demographics.
Absorption is when learners are given a permanent contract with a company after completion of their 12 months learnership. This earns the company bonus points for their BEE scorecard.
Preferential Procurement
The third significant change to the BEE codes relates to preferential procurement. Previously 40% of a company’s total procurement spend on goods and services was expected to come from companies that are 51% Black owned. The new target is that 50% of the total spend on goods and services is expected to come from companies that are 51% black owned. This is a significant increase, so as an added incentive to achieve this target, the procurement score for this indicator has increased from 9 to 11 on the scorecard.
Are you ready?
A six month window was created between when the new updates of the BEE codes were gazetted and when they come into effect; as such, the expectation is that companies will be prepared for it come 01 December 2019.
Size matters
An entity with a turnover of less than R10 million per annum qualifies for an automatic level 4, says Sergey. However, there are a number of ways a score can be enhanced:
If that entity is 51% Black owned, it’s enhanced to an automatic level 2.
If that entity is 100% Black owned, it’s enhanced to an automatic level 1.
If it is less than 51% Black owned, it will have an automatic level 4.
If this entity wanted to better itself and be measured to achieve a higher level, it could and a new QSE (Qualifying Small Enterprises) score would apply.
The same enhancements apply for QSE entities with a turnover of R10m to R50m only if they are 51% Black owned or 100% Black owned. A QSE with less than 51% Black ownership must undergo a BEE Verification, although the process is less stringent than it is for a generic entity with a turnover over R50million.
