Surviving the Amended BEE Codes of Good Practice effective 1 May 2015

Being BEE compliant is no longer a nice to have but a business imperative, particularly if you deal directly with Government, JSE listed companies and/or State Owned Enterprises (or if your customers deal directly with these organisations, in which case they will require your BEE certificate to assist them), or if you rely on a licence to operate.

Furthermore, Government has to apply BEE when they are granting licences and/or concessions; selling State Owned Enterprises; providing grants and/loans (this includes the SETA’s when paying out mandatory and discretionary grants).

Some of the major changes that will be implemented are:

  1. The turnover thresholds have been adjusted upward as follows:

o   Exempt Micro Enterprise < R10 million annual total revenue;

o   Qualifying Small Enterprise: R10 – R50 million annual total revenue; and

o   Generic Enterprise: > R50 million annual total revenue.

  1. The introduction of priority elements means that certain elements now have minimum compliance requirements otherwise your organisation will be discounted a level on the scorecard. These priority elements are as follows:

o   Ownership – you will need to score at least 40% of the Net Value points available i.e. there are 8 points available and you would need to score at least 3.2 points to avoid discounting. This means you will need to have a minimum of 10% black shareholding within your organisation.

o   Skills Development – you will need to score at least 40% of the total points available for this element. Therefore, Generic enterprises must score at least 8 points(40% of 20 points) and Qualifying Small Enterprises must score at least 10 points (40% of 25 points).

o   Enterprise and Supplier Development (previously Preferential Procurement + Enterprise Development) – you will need meet at least 40% of each of the compliance targets to avoid discounting. 

NOTE!  A Generic Enterprise will need to comply with all 3 priority elements and a Qualifying Small Enterprise has to comply with Ownership and one of the other priority elements. 

  1. The introduction of the Empowering Supplier concept.

By definition an Empowering Supplier is a “B-BBEE compliant entity, that is a good citizen South African entity, compliant with all regulatory requirements of the country (i.e. taxation, labour, employment equity, skills development etc) and should meet at least three, if it is a large enterprise, or one, if it is a QSE, of the following criteria:

o   Local Content – At least 25% of cost of sales excluding labour cost and depreciation must be procured from local producers or local suppliers in SA, for service industry labour costs are included but capped at 15%.

o   Job creation – 50% of jobs created are for Black People provided that the number of black employees since the immediate prior verified B-BBEE Measurement is maintained.

o   At least 25% transformation of raw material/beneficiation which includes local manufacturing, production and/or assembly, and/or packaging.

o   Skills transfer – at least spend 12 days per annum of productivity deployed in assisting black EME and QSE beneficiaries to increase their operation or financial capacity.” 

NOTE!  All EME’s automatically qualify as an Empowering Suppliers.

  1. Qualifying Small Enterprises have to comply with all the elements of the scorecard, including 2 priority elements.
  2. The target for Skills Development has doubled to 6% of payroll for Generic Enterprises and 3% for Qualifying Small Enterprises and now includes training of all black people (and not only your employees). The submission and approval of your SETA reports is compulsory, for both Generic and Qualifying Small Enterprises, in order to score points under this element where your payroll exceeds R500,000 per annum.
  3. Your management control (and employment equity), as well as skills development targets will be based on sub-race group targets as presented by the Dept of Labour Commission on Employment Equity.

To prevent a material drop in your rating, we recommend you apply the following:

  1. Have your organisation verified before the implementation on the 1st of May. That way you can secure your compliance level for another 12 months.Your certificate will need to be issued before the 1st of May 2015, to be measured under the current codes.
  1. Submit all the relevant SETA and Department of Labour Reports on time. The SETA reports need to be submitted by the 30th of April 2015- failure to submit may result in you not being deemed to be an Empowering Supplier (i.e. not compliant with all laws), as well as not being able to score points under the Skills Development element as the submission and approval of these reports is a pre-requisite for compliance (you can potentially lose 25 points). The Dept of Labour reports are due in January every year. If you are a designated employer (i.e. more than 50 employees or turnover compliance) you need to submit these reports annually. Failure to do so will result in major penalties from the Dept of Labour, as well as being excluded from scoring points under the Management Control element of the scorecard (19 points).
  1. With most financial year ends coming to an end, you will need to ensure all your enterprise, supplier and social development contributions are made before the period closes.
  1. Complete an internal self-assessment on your organisation’s compliance with the amended codes to determine the gaps ahead of your financial year end.
  1. Develop an implementation plan with targets and milestones to regularly monitor your compliance against these codes, so that any shortfalls can be recouped before the close of your measurement period.
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