How do I become BEE compliant?

What is Black Economic empowerment (BEE)

Black Economic Empowerment (BBE) is a government initiative aimed at increasing equity and uplifting black business owners, stakeholders and employees. BEE is referred to by the ANC as ‘positive discrimination’.

BEE is the process by which previously disadvantaged South Africans have been empowered through the transfer of ownership. Compliance with BEE principles are regulated by Codes, which provide details on how BEE should be implemented.

Why is BEE referred to as BBBEE?

When Black Employment Equity (BEE) was first implemented in the nineties, there was no coherent strategy towards its implementation. When the South African Government gazetted updated Codes of Good Practice at the beginning of 2007, it made the implementation of Black Economic Empowerment a legal reality.

Even though most think of Black Employment Equity as BEE, as the process was refined, its name changed to Broad Based Black Employment Equity BBBEE in order to encompass not just Blacks, but Coloured, Indians and the Chinese populations of South Africa.

Who Must Comply with BEE?

Size is relevant in determining the levels of BEE compliance. All organs of state, public entities and any private enterprise that undertakes business with a public entity must implement the Codes.

Any business providing goods or services with another business that is subject to BEE compliance may also be required to provide evidence of its own BEE compliance.

Advantages of BEE compliance

  • Allows participation in the formal South African economy
  • Companies will favour you as a client as they are aiming to procure 50% of their annual procurement from companies with BEE certificates.
  • Able to bid for Government tenders, apply for licences, get permits and are favourably considered for procurements by the Public Sector and all BEE verified enterprises.
  • Have access to tax incentives and financial grants, specifically aimed at the BEE programme.
  • Avoid long questionnaires relating to BEE when tendering for a contract.

How to Qualify for BEE

There are four steps to follow.

Step 1 – Select your company’s annual turnover

Compliance is based on the size of the business which is determined by turnover. The Codes provide for three levels of compliance based on the size of a business:

  • Exempted Micro Enterprises (EMEs) are businesses with an annual turnover of less than R5 million.  EMEs are exempt from BEE requirements.  No matter what their ownership status (they can be 100% white)
  • Qualifying Small Enterprises (QSEs) are businesses with an annual turnover of less than R35 million.
  • Medium to large enterprises (M&Ls) Medium to large enterprises with an annual turnover of more than R35 million.

Step 2 – Match the turnover to the scorecard

  • EME’s are exempt. No scorecard is required but the annual turnover must be verified by an accredited accountant, auditor or rating agency
  • QSE Scorecard must fulfil four of the seven pillars
  • M&L Scorecard must fulfil all seven pillars

Step 3 – Determine the number of pillars required for your scorecard

The seven pillars of BEE are:

  1. Ownership (Direct empowerment)
  2. Management (Indirect empowerment)
  3. Employment Equity
  4. Skills Development
  5. Preferential Procurement
  6. Enterprise Development
  7. Socio-Economic Development

Step 4 – Select the pillars for your scorecard

Each of the pillars is worth a certain “weight” in its contribution to BEE compliance. The pillars are weighted as follows:

  • Ownership                20%
  • Management                10%
  • Employment Equity            15%
  • Skills Development            15%
  • Preferential Procurement         20%
  • Enterprise Development        15%
  • Socio-Economic Development     5%

Understanding what each pillar means

It is important to understand the requirements of each pillar.

Ownership (counts 20 points)

When determining the level of black ownership, a business scores points for the
following:

  • The extent to which black people can influence the strategic direction of the
  • business through their shareholding
  • The current net value of their shares
  • The amount of profit (percentage of each Rand) that accrues to all of these black shareholders.
  • Whether these shares are paid for in full, or will be within 10 years or less.
  • Bonus points are awarded if any of the black shareholders are new entrants (who have
  • not previously benefited from a BBBEE deal)

Management (counts 10 points)

This refers to the proportion of black people who control the direction of the business as well as those in top management who control day-to-day operations.

Employment equity (counts 15 points)

Employment equity measures the representation of black people at each management level in a business.

Skills development (counts 15 points)

Skills development measures a business’s investment in the training and development of black employees. Only specific types of learning programmes and learnerships qualify when claiming points on the skills development scorecard.

Preferential procurement (counts 20 points)

This aspect of the scorecard allows you to gain significant points (as many as 20) by spending – but only if you buy from businesses that have a high BBBEE score.

Enterprise development (counts 15 points)

If the business offers support programmes, then you can claim points on the scorecard. For example, if you donate a vehicle to one of your black company drivers so that he or she can start or expand a delivery company, you qualify.

What are Codes of Good Practice for Black Economic Empowerment

The first Codes of Good Practice dealt mostly with Ownership and Management and were released in 2004. The second set, incorporating special codes for SMMEs (small, medium and micro enterprises) and the remaining five pillars were released in 2005. Private companies must apply the codes if they want to do business with any government enterprise – in order to tender for business, apply for licences and concessions, enter into public-private partnerships or buy state-owned assets.

The Act is broken up into nine Subsections.

  • Code 000: Framework for Measuring Broad-Based Black Economic Empowerment
  • Code 100: Measurement of the Ownership Element
  • Code 200: Measurement of the Management Control Element
  • Code 300: Measurement of the Employment Element
  • Code 400: Measurement of the Skills Development Element
  • Code 500: Measurement of the Preferential Procurement Element
  • Code 600: Measurement of the Enterprise Development Element
  • Code 700: Measurement of the Socio-Economic Development Element
  • Code 800: Measurement of Qualifying Small Enterprises

Sector codes are an extension of Codes of Good Practice

Companies must also be aware of Sector Codes, which are an extension of the Codes, but apply within a specified industry sector only. For example, there is a Construction Sector Code, a Property Sector Code, Financial Sector Code, Tourism Sector Code and so on.
Sector codes are more industry-specific interventions and measures that are driven by major stakeholders in industries where the codes are developed.

Levels

Customers (public and private) will prefer to interact and procure from companies with higher BEE status (for its own recognition). Level 1 being the ultimate goal.
These are BEE status levels
BEE Score            BEE Status            Recognition Level
100+                      Level 1                    135%
85-100                   Level 2                    125%
75-85                     Level 3                    110%
65-75                     Level 4                    100%
55-65                     Level 5                    80%
45-55                     Level 6                    60%
40-45                     Level 7                    50%
30-40                     Level 8                    10%
<30                        Non-compliant          0%

What is SANAS?

A BBBEE Certificate can be issued by any Verification Agency so long as they are approved to do so by SANAS. The Certificate can only be issued once a full verification has been performed and the documentation presented by your company has been verified. The South African National Accreditation System (SANAS) is recognised by the South African Government as the single National Accreditation Body that gives formal recognition. SANAS certificates are a formal recognition that an organisation is competent to perform specific tasks.

Rating Agencies must perform the assessments strictly according to the guidelines set out by the Department of Trade and Industry (DTI). On successful completion they will issue a certificate with the Level (1-9) of BEE appropriate to your enterprise.

  • A certificate will be issued which is relevant to all companies requesting it.
  • BBBEE must be validated by a SANAS accredited verification agency.
  • Self accreditation is no longer recognised or accepted.

Rating Process

The rating process only applies to QSEs and M&L’s

Step 1: Application, approval and payment

  • Measured Entity (ME) requests an Application Form
  • Client Manager sends Application Form to ME
  • ME completes and returns Application Form to Client Manager
  • Client Manager sends Application Form to Verifications Manager
  • Verifications Manager reviews and approves application against preset criteria.
  • Client Manager sends Quotation and/or Invoice to ME
  • ME approves quote and pays commitment fee (65% of quoted/Invoiced amount).

Step 2: Pre-site Visit and Legal Processes

  • Client Manager prepares and sends SLA and other contracts for signature by ME
  • Lead Analyst visits ME for a briefing, to explain the verification process and to agree on Verification Plan, Team and deadlines.
  • ME prepares all required documents and sends them to Client Manager.
  • Client Manager signs Document Register acknowledging receipt and hands documents over to Lead Analyst.

Step 3: Analysis, Site visit, Reporting and Certification

  • Lead Analyst performs a basic analysis and measures entity against scorecard.
  • Lead Analyst visits ME on site for Verification as agreed on Verification Plan.
  • Lead Analyst prepares Verification Report and Recommendation for Verifications Manager.
  • Verifications Manager performs Vertical Assessment and Quality Assurance on report and then approves recommendation report.
  • Client Manager sends Verification Report and Rating to ME for approval.
  • ME approves Verification Report and Rating.
  • Verifications Manager issues Rating Certificate and Final Report.
  • Client Manager sends Rating Certificate and Final Report to ME.

Who should manage BBBEE process in a business

The best way to structure the management process is as follows:

  • Chief Executive Officer – Ownership and Management Control
  • Chief Financial Officer – Preferential Procurement and Enterprise Development
  • Employment Equity Committee – Socio-economic Development, Skills Development and Employment Equity.
  • The Employment Equity Committee needs training, as they are likely to have limited experience in making strategic recommendations to the CEO on these issues. The CEO should sit in the Employment Equity Committee along with someone with HR experience.

Did you know?

Unlike State-owned entities, private companies are free to develop their own procurement policies, which may include different criteria and different weightings to that of the generic scorecard.

Legislation

There are three important pieces of legislation that control BBBEE

Equity Act (1998)

The Employment Equity Act applies to black people, all women and disabled people, in addition, stipulates the requirements for affirmative action to ensure that qualified people from these groups are equitably represented in all occupational categories and levels of a company. The Act is binding on any business that employs 50 or more staff, or that has an annual turnover of more than R2 million to R25 million (depending on the industry in which you operate).

Skills Development Act (1998) and Skills Development Levy Act (1999)

These provide a framework for improving the skills and employment prospects of black people. These Acts also make it compulsory for certain employers to contribute a percentage of their payroll (known as the Skills Development Levy) to a fund that can be used to train staff. The current generic BBBEE scorecard awards points for skills development, but only for that which is over and above the payment of this levy.

Preferential Procurement Policy Framework Act (2000)

This allows any State entity to give preference to black people when awarding contracts. It also aims to boost SME development, create new jobs and promote local enterprises in specific provinces. Currently, the regulations of this Act are based largely on ownership, but this is likely to be revised in order to align it with the BBBEE Act and Codes.

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