About B-BBEE
BROAD-BASED BLACK ECONOMIC EMPOWERMENT
Understanding B-BBEE
BEE (Black Economic Empowerment), or Broad-Based Black Economic Empowerment (B-BBEE) as it is technically known, is an initiative by the South African government to address historical imbalances of the country by facilitating the participation of black people in the mainstream economy. B-BBEE is governed by the Broad Based Black Economic Empowerment Act No. 53 of 2003 and the B-BBEE Codes of Good Practice gazetted in February 2007 and the Amended Codes of 2013.
B-BBEE has, in many cases, left business owners anxious as the terminology isn’t fully understood. B-BBEE compliance has no statutory obligation, however the decision to get verified and being B-BBEE compliant is based on an individual entity’s benefit from it.
To do business with government or any institution associated with the state, an entity is required to have a valid BEE certificate. An entity should ensure that the B-BBEE Verification Agency is accredited with SANAS. Corporates insist on using B-BBEE compliant suppliers, to the extent that they have automated systems that remove vendors if they are non-compliant, and seeing that private companies are losing business, they are electing to use B-BBEE compliant suppliers as well.
What Is The Purpose of B-BBEE?
To redress the inequalities of the past
To contribute directly to the economic transformation of South Africa
To bring about significant increases in the numbers of black people that manage, own and control the company’s economy
To significantly decrease income inequalities
What Are The Elements of B-BBEE?
Equity Ownership: Who owns or has shares in the business
Management Control: Control of the business and who works in management positions
Skills Development: Training done by the organisation
Enterprise and Supplier Development: Who you purchase your goods or services from
Socio-Economic Development: Contributions made by the business for social causes
How Will a BEE Certificate Help My Business?
Give your entity an edge over competitors
Open up doors for business growth, and wider economic growth
Preferential procurement
Prioritised access to finance
An upskilled, more efficient workforce
B-BBEE Verification and Audits
How Does The Verification Process Work?
The Verification process is an independent audit process aimed at verifying, confirming and validating the B-BBEE status of the entity.
Rocksolid Consulting has partnered with a SANAS Accredited Rating Agency – BEE RATED – who provide accurate, efficient and cost-effective ways for entities to establish and present their B-BBEE status.
The process utilised when verifying the BEE status of an entity by BEE RATED is consistent with the requirements of:
- Broad-Based Black Economic Empowerment Act (53/2003)
- Broad-Based Black Economic Empowerment Act : Codes of Good Practice on Black Economic Empowerment (2007)
- Sector Codes of Good Practice
- SANAS document R47-02
The Verification Exercise Undertaken by BEE RATED Is As Follows:
BEE RATED sends Client an initial information pack containing the following documents: ‘Verification Process Outline’; BEE RATED Overview; Pre-Proposal form.
- Client returns the completed Pre-Proposal form to BEE RATED.
- BEE RATED reviews the Pre-Proposal form and if it meets the requirements prepares and sends a formal Proposal to Client.
- Client returns the Acceptance Agreement, Annexure 1 in the Proposal document, to BEE RATED, and makes payment of the 50% mobilization fee.
- BEE RATED forwards a ‘BEE Questionnaire’ to Client for completion and return to BEE RATED within six weeks of receipt.
- BEE RATED assesses the completeness of information contained in the Questionnaire, and engages with Client, as necessary, should there be outstanding information required.
- BEE RATED provides Client with a Verification Plan, and a date and time for the on-site assessment is agreed.
- BEE RATED’S verification team conducts the on-site assessment and verification of Clients B-BBEE status.
- -BEE RATED’S verification team prepares a report and recommended rating.
- BEE RATED’S verification committee reviews and confirms the rating.
- BEE RATED prepare the final fee which the entity will need to pay before the certificate is issued.
- Client is provided with a rating report and BEE verification certificate.
Notes:
i) BEE RATED’S verification team is required to sign confidentiality undertakings prior to engagement in a verification exercise.
ii) A confidentiality agreement is also signed with the Client.
iii) BEE RATED clients are required to confirm with and abide by the above BEE Verification process.
iv) BEE RATED is committed to providing clients with accurate, professional ratings and service along with the assurance of confidentiality and impartiality (including when managing conflicts of interest).
Service Fees:
The service fee formally quoted will be based on the specifics of the enterprise, including nature and complexity, eg, annual revenue, number of staff, operational sites and nature of black shareholding.
Which Elements Are Verified During a BEE Audit?
1.Ownership:
Measures the effective ownership of the enterprise by black people. To achieve maximum points on this element the measured entity needs to have at least 26% black ownership (Black being Africans, Coloureds and Indians). This black shareholder needs to be directly involved in the strategy and leadership of the company along with their financial compensation. Ownership is a compulsory element and is one of the 3 priority elements on the scorecard and the measured entity is required to achieve a 40% sub-minimum on Net Value points to avoid being discounted a level. Black ownership can be direct (Through an individual) or Indirect (Through another company, Employee Trust etc)
2.Management Control:
Measures the effective control of the enterprise by black people. The points on this element are earned depending on the number of black employees the measured entity has across Senior, Middle and Junior Management levels. The measured entity scorecard is based on the overall demographics representation of black people as defined in the Regulations of Employment Equity Act and commission on Employment Equity Report as amended from time to time.
3.Skills Development:
Measures the extent to which employers carry out initiatives designed to develop the competencies of black people. If an entity has a vested interest in its staff and is dedicated to improving their skills, then it can be used to gain BEE points. A highly skilled workforce is a benefit to the company, so it is a win-win situation. Skills Development expenditure consists of the following, to name a few:
- Learnerships
- Internships
- Apprenticeships
- Scholarships and Bursaries etc.
Skills Development is one of the easier elements to score points on as an entity can use the employee’s salary if they are participating in a Learnership, Internship or Apprenticeship as part of their skills development expenditure. For an Entity to measure this element they need to submit a Work Skills Plan (WSP), Annual Training Report (ATR) and Pivotal Report. This document is submitted by the measured entity to the relevant SETA only if their salary bill is greater than R500 000 per annum. For an entity to avoid being discounted they need to meet a sub-minimum of 40% of the target as skills is one of the 3 priority elements.
4.Enterprise and Supplier Development:
-Preferential Procurement: To achieve points on this element, an entity has to buy products or services from a company that has a valid BEE certificate and strong BEE procurement recognition level.
-Enterprise Development: Measures the extent to which Enterprises carry out initiatives intended to assist and accelerate the development and sustainability of black Entrepreneurs or black owned entities that have at least 51% Black Ownership and are under the R 50 million annual turnover threshold.
-Supplier Development: Similarly, Supplier Development measures these same initiatives in assistance of black owned entities, that have at least 51% Black Ownership and are under the R 50 million annual turnover threshold, within their own supply chain. For an Enterprise Development and Supplier Development contribution and beneficiary to qualify as beneficiaries they need to have the following documents:
- Valid BEE Certificate
- ED and SD Agreements
- Thank You Letter/ Acknowledgement Letter from the beneficiary
- Proof of Payment and
- Beneficiaries must be an EME or QSE and they must have black shareholding of at least 51%.
5.Socio-Economic Development:
This is where the businesses social responsibilities come into play. This element measures the extent to which enterprises carry out initiatives that contribute towards Socio-Economic Development, that promote access to the economy for black South African people e.g. Education in the form of Bursaries.
The Classification of Companies Under B-BBEE Legislation
Businesses are categorised based on their annual turnover; this determines the type of verification required:
Exempted Micro Enterprises (EME)
These are businesses with a turnover below R10 Million per annum under the General Codes of Good Practice. Businesses with 100% black shareholding in this category qualify as level 1. Businesses with shareholding less than 100% but more than 51% will qualify as level 2 and businesses with black shareholding less than 51% qualify as level 4.
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As per the 2013 BEE Codes Of Good Practice, a business with an annual turnover higher than R10 million but lower than R50 million qualifies as a QSE.
QSEs are measured against all five criteria on the amended 2013 BEE Scorecard:
- Ownership
- Management Control
- Skills Development
- Enterprise and Supplier Development
- Socio-Economic Development
QSEs with black ownership receive the following BEE ratings:
- 100% Black-Owned QSE – Level 1
- 51% or more Black-Owned QSE – Level 2
Qualifying Small Entities (QSE)
These are businesses with a turnover between of between R10 and R50 Million per annum under the General Codes of Good Practice. Businesses with 100% black shareholding in this category qualify as level 1. Businesses with shareholding less than 100% but more than 51% will qualify as level 2, on the other hand businesses with black shareholding less than 51% will be measured against a QSE BEE scorecard, the measured entity must be evaluated on all 5 elements on the BEE scorecard.
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The amended Codes in Code Series 000 states that an EME is only required to obtain a sworn affidavit. The purpose of this intervention is to reduce the cost of compliance and the cost of doing business for small businesses in South Africa. The EME is merely required on an annual basis to state under oath its B-BBEE credentials as long as the annual turnover is below R10 million.
The sworn affidavit must be signed by the Commissioner of Oaths as per the requirements in the Justices of Peace and Commissioners of Oaths Act, 1963 (Act No. 61 of 1963).
With the new B-BBEE Codes of Good Practice gazetted on 11 October 2013, enterprises with an annual turnover lower than R10 million qualify as an Exempted Micro Enterprise (EME) and are exempted from being measured on a BEE scorecard (they automatically receive a Level 4 rating).
Nevertheless, EMEs can, of their own accord, go beyond a Level-4 BEE rating:
- 100% Black-Owned EME – Level 1
- 51% or more Black-Owned EME – Level 2
- Any other EME – Level 4
EMEs automatically qualify as Empowering Suppliers so their customers are able to claim BEE points when buying from them.
Although an EME does not need a BEE certificate, it must however produce an affidavit declaring turnover to be less than R10 million and the percentage of the company that is black-owned.
An affidavit is valid for 12 months from the date of commission.
Generics
These are businesses with a turnover above R50 Million per annum and are measured against a Generic BEE scorecard. Such entities will be measured on all 5 elements on the scorecard.
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As per the 2013 BEE Codes Of Good Practice, a business with an annual turnover higher than R50 million is measured against the Generic BEE Scorecard.
Generic Enterprises are measured against all five criteria on the amended 2013 BEE Scorecard:
Ownership
Management Control
Skills Development
Enterprise and Supplier Development
Socio-Economic Development
UNDERSTANDING Y.E.S
The Youth Employment Services Initiative
The Y.E.S initiative is a business-led collaboration with Government and Labour to create one million job opportunities for the youth. The Y.E.S BEE benefit can be claimed at your financial year-end with your verification agency if you have achieved at least 40% sub-minimum or achieved an average 50% across the three priority elements i.e. Ownership, Enterprise and Supplier Development and Skills Development.
The Y.E.S Initiative has been implemented and is fully in force for entities of all sizes. The Y.E.S Initiative has been extended through to the Sector Codes, this will exclude the Transport Sector since Y.E.S sits within Statement 000 of the Amended Codes of Good Practice and the Transport Sector is currently still based on the Old Codes.
A Y.E.S entity must maintain or improve on its previous BEE level in order to participate in Y.E.S. Where there are specific factors that make this impossible such as a downturn in the business or a large supplier failing to maintain its B-BBEE level, the entity may engage with the Dti B-BBEE Policy Unit with justifiable evidence for participation.
The Y.E.S workplace experience being provided must be for 12 months and can be counted as long as 8 months are achieved. If any Y.E.S employee falls out, the entity has 1 month to replace the employee. The workplace experience cannot be a Learnership, Internship or Apprenticeship so there is no double counting. The Y.E.S Initiative is an addition to Skills Development learnership targets. However, Y.E.S Entities are able to claim 50% of their Skills Development Spend for Y.E.S employees as Informal Training (Cat F&G) under the Skills Development element.
Exempted Micro Enterprises (EME’s) or 51% Black Owned Qualifying Small Enterprises (QSE’s) who register as Y.E.S entities will have to be verified by a SANAS accredited Verification Agency under the relevant QSE scorecard. EME’s or QSE’s can become host entities for youth employees taken on by other Y.E.S entities.
Who Qualifies for the Y.E.S Initiative?
The Y.E.S benefits can raise your B-BBEE status up two levels on the scorecard and should be seriously considered.
Generic entities with total revenue above R50 million per annum must achieve at least the 40% sub-min or must achieve an average of 50% across the three priority elements.
QSEs with a total revenue between 10 million and 50 million must achieve at least 40% in two of the three priority elements with Ownership being one of the two elements or must achieve an average score of 40% across two priority elements.
EMEs with a total revenue below 10 million per annum have no sub-min eligibility requirements.