New BBBEE codes and Changes

As of the 1st of May 2015 these are the important changes that will occur when the new BBBEE codes steps in:

The codes have changed from seven elements to five.

  • Ownership
  • Management Control
  • Skills Development
  • Enterprise and Supplier Development
  • Socio-Economic Development

There are also new Priority elements – these are Ownership, Skills Development and Enterprise and Supplier Development. One of the most important aspects is the dropping of one level if your company does not achieve certain minimums in the priority elements. For a Qualifying Small Enterprise (QSE) their main priority element is Ownership and one other priority element otherwise they will drop a level.

Another important feature is that the turnover threshold to qualify as an Exempt Micro Enterprise has changed from R5 million to R10 million and for a Qualifying Small Enterprise has changed from R35 million to R50 million.

If your company is an EME you are automatically a Level 4 contributor but, if your company has more than 51% Black ownership then you are a level 2 contributor or if you are 100% black owned then you will be a level 1 contributor.

The recognition table has changed. It is possible to earn the same points or even slightly more, but it does mean that most companies may drop down a level or two.

An interesting indicator with regards to skills development – if you assist unemployed learners with training to obtain jobs in the industry on completion of their learnership then you will be allowed to claim additional bonus points for Skills Development.

The 5 elements are:

Ownership:
This has not changed significantly. The targets are still 25%, and weighting is 25 points. We are encouraged that there are some clarifications around how to score points.

Management Control:
The codes previously included 2 elements: management control and employment equity. Both elements have been consolidated into a single element, but with substantially the same indicators. Previously management control and employment equity were worth 29 points combined. The new combined element is only worth 19 points. In recent years employment equity has improved dramatically. Points are the incentive to businesses to become compliant. By dropping the points available and making the weightings more onerous could rebound in that companies may make less effort in this important activity.

Skills Development:
Skills has increased from 15 points to 25 showing the importance of skills development in the economy. Some targets have increased: Target spend is now 6% of payroll, instead of 3%, but more points can be earned than ever before. We see this as a positive move. Although a possible consequence of decreased points for Management is less effort the reverse is almost certainly going to be true. With 10 additional points Skills Development is not only a priority element in terms of the codes but a priority in terms of business.

Enterprise and Supplier Development:
The current codes speak of two elements: Preferential Procurement and also Enterprise Development. The new element Enterprise and Supplier Development (E and SD) is a simple combination of both elements. The two previously were worth 35 points. This has now increased to 44 points. A slight concern is it is now more difficult to reach targets on procurement in that the minister has defined “empowering suppliers” which is a more complex definition than having a simple recognition level. It implies that even if a company does reach a compliant level, it may not be sufficient to help its customers earn BEE points. The whole driver behind BEE compliance is that a company asks its suppliers for BEE certificates in order to earn points and therefore companies obtain certificates to satisfy their customers. If a company cannot meet the requirement of being an “empowering supplier”, even if it can reach a BEE level, it may discourage that company from continuing its transformation journey.

One of the indicators on the new element E and SD is for a company to spend 40% of its procurement from empowering suppliers that are at least 51% black owned. We know that there is a distinct lack of black industrialists and this target is going to be very difficult to achieve. Clever businesses will start the process now of identifying black businesses who can supply substantial values of goods and services. Since the new codes give a one year transitional period, there is not too much time. From a black industrialist’s viewpoint, this is an excellent opportunity to grow his business. If procurement works, BEE will pretty much have succeeded.

Socio-economic Development:
The last of the five elements is unchanged at 5 points.

Summary:
The points on all elements add up to 118 (previously 107 for all seven elements).

Element Points (incl Bonus)
Ownership 25
Management Control 19
Skills Development 25
Enterprise and supplier development 44
Socio Economic Development 5
Total 118

New Points to Levels Table:
As a result of the increased points available the minister has changed the points to levels table as follows.

Level Amended Codes Current Codes
1 ≥100 ≥100
2 ≥95 but <100 ≥85 but <100
3 ≥90 but <95 ≥75 but <85
4 ≥80 but <90 ≥65 but <75
5 ≥75 but <80 ≥55 but <65
6 ≥70 but <75 ≥45 but <55
7 ≥55 but <70 ≥40 but <45
8 ≥40 but <55 ≥30 but <40
Non-Compliant <40 <30

We see this as an unnecessary complication to the codes. Everything could have been calculated out of 100%. Psychologically businesses may feel disappointed when they see their current level 3 become a 4 or a 5.

In addition the minister has exempted all businesses with an annual turnover of less than R10million (previously R5million) from all forms of BEE. Any organisation, no matter its ownership is automatically level 4. Furthermore, any business that is 100% black owned and has an annual turnover of less than R50million is automatically level 1. If that business is more than 51% black owned and less than 100% it is level 2.

A QSE (qualifying small enterprise) which is currently any organization/business with a turnover of between R5million and R35million and follows a far more lenient scorecard has been adjusted to R10million to R50million. However, other than for black owned businesses, it still has to follow the entire scorecard with very few allowances or easier aspects to its scorecard than the generic.

Priority Elements:
The minister has also defined three of the five elements as priority elements with additional targets.

  • 40% on ownership’s net value
  • 40% of the skills development score
  • 40% of the Enterprise and supplier development score

If a generic business does not achieve all three targets (two targets for QSEs), it drops one level.

If your company needs assistance with aligning your company with the new BBBEE codes, don’t hesitate to contact us at info@werskills.co.za

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