broad-based black economic empowerment · a qse will now be defined as an entity whose turnover is...

BROAD-BASED BLACK

ECONOMIC EMPOWERMENT

P R E S E N T E D B Y A L E X I S S A C K S

1 9 M A R C H 2 0 1 3

BROAD-BASED BLACK ECONOMIC EMPOWERMENT

1. What is B-BBEE?

2. Definition of Black People

3. Compliance Requirements

4. Codes of Good Practice

5. Scorecard Points and B-BBEE Recognition Level

6. The Seven Elements

7. Scorecards

8. The B-BBEE Calculations

9. Sector Charters

10. Fronting

11. Practical B-BBEE Tips

12. How to achieve a Level 1 rating as a QSE CA(SA)

13. A summary of proposed changes______________________________________________________________________


DEFINITION OF BLACK PEOPLE

Black means African black, coloured or Indian people

who are South African citizens by birth or descent or

who became South African citizens before 27th April

1994.

NB the definition of coloured now also includes

Chinese.

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WHAT IS B-BBEE?

B-BBEE refers to Broad-Based Black Economic Empowerment. It

encourages companies to help transform the country with

broad-based activities that benefit black people by having access

to more economic opportunities.

By maximising your BEE status, you will be able to:

• Provide a competitive edge independent of your

organisation’s size,

• Encourage large companies to invest in a compliant company,

• Assist in unemployment and poverty in the long term.

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COMPLIANCE REQUIREMENTS

BEE compliance is measured by means of a scorecard.

The scorecard is based on various elements and your company

is measured out of a maximum of 100 points (in some cases it

is possible to obtain more than 100 points).

The BEE Codes of Good Practice describe the mechanisms of

the scorecard.

The seven rating elements make BEE broad-based. They cover

various aspects of the economy, society and the company.

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CODES OF GOOD PRACTICE

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SCORECARD POINTS AND B-BBEE RECOGNITION LEVEL

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THE SEVEN ELEMENTS

1. Ownership - measures the percentage of shares in the business that are

owned by black people.

2. Management – measures the black directors and top management of the

business.

3. Employment Equity – measures the black employees in the business.

4. Skills Development - measures the amount of money spent on training of

black employees.

5. Procurement – measures your suppliers and their BEE scores.

6. Enterprise Development - your spend on helping black owned enterprises.

7. Socio-Economic Development - your spend on assisting charitable

organisations with black beneficiaries.

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Qualifying Small Enterprise’s (QSE’s)

Qualifying Small Enterprise’s (QSE’s) can select any four

of the seven elements. Their annual turnover is typically

greater than R5 million but less than R35 million.

Generic Enterprises need to comply with all seven

elements of the scorecard. Their annual turnover is

typically above R35 million.

* The exceptions are highlighted in your notes for the

different sector scorecards.

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SCORECARDS

SCORECARDS

Exempt Micro Enterprises (EME’s)

Total Annual Revenue typically of R5m or less.

Deemed to be a “Level 4 Contributor” (100% Recognition

Level).

If more than 50% is owned by Black people, the entity is

promoted to Level 3 Contributor (110% Recognition Level).

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SCORECARDS

The QSE Scorecard

The QSE scorecard has the following components and points available:

SCORECARDS

The Generic Scorecard

The Generic Scorecard has the following components and points available:

THE B-BBEE CALCULATIONS

The calculations are simple – in each instance you have an

indicator. The indicator will have a target and a number of

points available – you need to reach the target to earn the

points.

Calculation Example

Socio-economic Development (SED):

Target – spend 1% NPAT on black people for SED = 5 points;

Actual – spent 0.5% NPAT

Therefore, 0.5%/1% NPAT * 5 points = 2.5

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SECTOR CHARTERS

* The turnover thresholds are highlighted in your notes

for the different sector scorecards.

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FRONTING

‘Fronting means a deliberate circumvention or

attempted circumvention of the B-BBEE Act and

the Codes.

Fronting commonly involves reliance on data or claims of

compliance based on misrepresentations of facts,

whether made by the party claiming compliance or by

any other person.’

(South Africa. Department of Trade and Industry, no

date)

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PRACTICAL B-BBEE TIPS

1. When verifying Socio-Economic Development, the following

evidence is required to support your claim for points:

�Proof of the contribution.

�A letter from the head of the beneficiary organisation

confirming receipt and confirming the percentage black

beneficiaries.

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2. When verifying Enterprise Development, the following

evidence is required:

�An agreement between both parties confirming the

arrangement.

�Documentation confirming the B-BBEE status and qualifying

category of the entity (e.g. BEE certificate, proof of turnover,

proof of black ownership, etc)

�Documentation proving that the contributions have been

made e.g. bank statements showing payments, receipts,

letter of acknowledgement from beneficiary, etc.

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3. These are some of the most common ways to lose points on

your scorecard:

�Training takes place outside of the measurement period

�Lack of training for black employees

� Inadequate record keeping

�Unable to prove attendance at training

�No Learnership contracts

�Unable to prove amount spent on training

�No records of internal training

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�A generic company must comply with the following to be

rated for these elements:

�Registration with applicable SETA

�Development of a workplace skills plan

�If you are a ‘designated employer’ according to the turnover

thresholds for your industry (as indicated in Schedule 4 of

the Employment Equity Act), no points will be awarded for

Employment Equity, unless you have submitted the required

EEA2 and EEA4 reports to the Department of Labour.

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4. Sector codes apply from the day they are gazetted as a

final sector code.

This means that you need to be aware of any new codes in

the final stages of gazetting, as they may affect your

industry scorecard, retrospectively.

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5. Certain of the elements are time-based and certain are

based on the financial period.

�The elements of skills development, preferential

procurement, enterprise and socio-economic

development are based on the financial period.

�The remaining elements, ownership, management control

and employment equity, are all measured at the date of

verification.

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HOW TO ACHIEVE A LEVEL ONE RATING

AS A QSE CA(SA) FIRM

1. Skills development: Target 2% of leviable payroll = salary

costs of black trainee accountants.

2. Preferential procurement: Target 50% of total costs spent on

businesses with at least Level 4 BEE rating.

3. Enterprise development: Target 2% of NPAT or 0.25% of

turnover = time or cost contribution to 50% black owned

entity.

4. Socio-Economic development: Target 1% of NPAT or 0.125%

of turnover = time or cost contribution to charity with > 75%

black beneficiaries.

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A SUMMARY OF THE PROPOSED CHANGES TO

THE CODES OF GOOD PRACTICE

A QSE will now be defined as an entity whose turnover is between

R10m and R50m.

However, there will also now be little difference between the

verification of a QSE or a Generic, other than the QSE will only be

required to meet a minimum target of 40% of the compliance

target on 2 of the 3 priority elements to avoid an automatic drop

of 1 level in its Recognition Level.

The Generic Enterprise will be required to meet a minimum target

of 40% of the compliance target on all 3 of the priority elements to

avoid an automatic drop of 2 levels in its Recognition Level.

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An EME will now be defined as an entity whose turnover is less

than R10m and will still have an automatic Recognition Level of 4.

Where the entity is more than 50% black owned, it will be

granted an automatic Recognition Level of 2 and where the EME

is 100% black owned, it will be granted an automatic rating of

Level 1.

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THE CODES OF GOOD PRACTICE: OCTOBER 2012

There are some significant changes in the details and calculations

in each element and the requirements for inclusion such as:

• The Recognition Levels will change and more points will be

required to be recognised at each Level other than Level 1.

• All businesses will need to achieve a minimum of 40% of the

compliance targets for the Ownership element that

is 25 points of 105, as it is a priority element for QSE’s

and Generics.

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• Junior Management will no longer be recognised as a category

for Management Control.

• The Preferential Procurement target for spend on all suppliers

will increase from 50% in February 2012 to 70% to 80%.

• Imports will no longer be allowed to be excluded from the

Preferential Procurement Spend calculation.

• Only Value-Adding Suppliers (an entity that is VAT registered

and whose NPAT plus salaries is greater than 25% of turnover)

will be eligible for recognition in the Preferential Procurement

Spend calculation?????????

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• 66% of the contributions to Enterprise Development must be

made to EME’s or QSE’s that are more than 50% black owned

and who are in the company’s supply chain.

• The target for Skills Development spend will increase from 3%

of leviable amount to 6% of leviable amount.

• Only training spend on black employees who are on formal

learning programmes that will be assessed by an accredited

body will be eligible for rating.

• Informal training and on the job training costs will no longer

be included in the target spend.

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