What is Black Economic Empowerment?
It is a programme that was launched by the South African Government to redress the inequalities of apartheid by giving certain previously disadvantaged groups (Blacks, Coloureds and Indians) within the South African citizenship economic privileges that were previously not available to them under the old Government. Although race is the overriding factor, it includes measures such as employment preference, skills development, ownership, management, socioeconomic development and preferential procurement.
Are you exempted?
Small businesses, generally with a turnover of less than R5 million are considered to be Exempted Micro Enterprises and do not need to be measured against the BBBEE scorecards listed below. Even though you may be exempt it would be to your advantage to voluntarily start adopting BBBEE codes so that when you are over the exemption threshold you are well placed to become fully compliant.
Are you qualified as a Small Enterprises?
Businesses with an annual turnover from R5 million – R35 million are rated on the following scorecard and may choose any four of the pillars to address, totaling 100 points.
Element Weighting Compliance Targets
Ownership 25 points 25% + 1
Management incl. Employment Equity 15 + 4 bonus points 50.1%
Skills Development 20 + 5 bonus points 2% of payroll
Enterprise and Supplier Development 40 + 2 bonus points 2% (NPAT)
Socio-Economic Development 5 points 1% (NPAT)
What are the basics of BBBEE?
Most business owners are frightened off by BBBEE terminology. BBBEE is a government policy which is mostly referred to as Black Economic Empowerment. With the implementation of the newly amended BBBEE codes, companies will have to be pro-active in their approach to transformation in order to maintain a good BBBEE score.
The process of becoming BBBEE compliant is known as the BEE verification process.
The BBBEE verification process is where the company needs to contact a SANAS accredited BBBEE verification agency. The company will then have to undergo a partial or full audit to determine its BBBEE compliancy levels.
BEE Scoring Levels under the Amended Codes are:
BBBEE Level Amended Codes Procurement Recognition
1 ≥ 100 points 135%
2 ≥ 95 but <100 125%
3 ≥ 90 but <85 110%
4 ≥ 80 but <90 100%
5 ≥ 75 but <80 80%
6 ≥ 70 but <75 60%
7 ≥ 55 but <70 50%
8 ≥ 40 but <55 10%
Non-compliant <40 0%
What are the categories of BBBEE Companies?
According to the annual turnover, the following is categorized:
Exempt Micro Enterprise is when the turnover is less than R10 million. Note that in other industries this may differ, for example the tourism industry the annual turnover needs to be less than R2.5 million. A full audit is not necessary, only the CIPC registration certificate and ID copies of the shareholders is required. EME with more than 51% black ownership can get a Level 2 score and 100% black ownership can receive a Level 1 and only requires an affidavit.
Qualifying Small Enterprise is when the turnover is less than R50 million but more than R10 million. An on-site audit needs to be done and 5 elements are verified and site verification is conducted. QSE with more than 50% black ownership can get a Level 2 score and 100% black ownership will receive a Level 1 and only requires an affidavit.
Is when the turnover is more than R50 million and a full on site audit is required. All 5 elements are verified as per the Generic scorecard, a site verification as well as interviews will be conducted.
What are the 5 Elements for BBBEE Verification?
In order to comply during BBBEE verification the company must provide proof of activity, spending and contributions in the five elements of empowerment as listed below.
Proof of shares. A share certificate will need to be provided as this is regarded as a priority element.
Proof of men/women in top/senior/middle junior management. Interviews are held to confirm seniority, job description, salary etc.
Proof of training spent on employees or non-employees and accredited programs. This is also regarded as a priority element.
Enterprise and Supplier Development
Proof of purchases from current suppliers that are BEE compliant and empowering suppliers.
Socio Economic Development
Social contributions towards own employees, employees families and communities such as paying employees children’s school fees and contributions towards black sports teams.
What are the consequences of Non-Compliance and Circumvention Criminal Sanctions?
The department of Trade and Industry has changed its view in regard to the monitoring of BBBEE and the enforcement of the BBBEE legislation. They have introduced a number of criminal offenses.
A fronting practice is a transaction, arrangement or other act or conduct that directly or indirectly undermines or frustrates the achievement of the objectives of the BBBEE Act. The penalties that can be imposed include imprisonment for a period of up to 10 years, a fine of up to 10% of its turnover or both. A person convicted may not conduct any business with any state or public entity for a period of 10 years from the date of conviction.
Is BBBEE a threat to my business?
When sufficient planning is implemented then it need not be viewed as a threat to your business but rather seen an as an opportunity to grow your business.
- Department of Trade and Industry
- SANAS South African National Accreditation System