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What Employers need to know… B-BBEE and the impact on HR initiatives

  1. What is B-BBEE and how is it different to Employment Equity?

  • The Broad-Based Black Economic Empowerment (B-BBEE) Act is black empowerment legislation which focuses on empowerment initiatives.
  • B-BBEE is much broader than the Employment Equity Act (EEA).
    • The EEA focuses on ensuring that Companies transform its staff compliment and thereby empowering all previously disadvantaged groups.
    • B-BBEE is a separate piece of legislation aimed at supporting and further empowering Companies that are either Black Owned or showing Black Empowerment Initiatives.
  • An important difference between the EEA and B-BBEE Act is that the EEA includes all previously disadvantages groups (which include White Females) while B-BBEE focuses on Blacks only (Africans, Coloureds and Indians). White Females are therefore excluded from B-BBEE legislation.
  1. What must I comply with? B-BBEE or Employment Equity or both?

  • Employment Equity (EEA) requires your compliance if you are a Designated Employer (>50 employees or less than 50 employees but with an annual turnover that exceeds that of a small business).
    • Penalties ranging between 2% and 10% of annual turnover could be incurred for non-compliance.
  • B-BBEE codes apply to all Measured Enitities which include: (a) all Organs of State and Public Entities; (b) all Measured Entities that undertake economic activity with Organs of State and Public Entities; (c) any other Measured Entity that directly or indireclty undertakes economic activity with any other Measured Entitiy which is subject to measurement under (a) and (b) and which seeks to establish its own B-BBEE compliance.
    • Non-compliance and low levels of contribution to B-BBEE will limit your ability to do business with Government and other Companies. Many companies only procure from B-BBEE compliant companies as it impacts on their B-BBEE rating.  Therefore, although not compulsory, it is short-sighted for your business not to support this initiative.
    • Smaller Companies are exempt from B-BBEE legislation as they receive an automatic minimum Level 4 Rating.
  1. B-BBEE changes – effective 30 April 2015

  • Important changes are being implemented in BB-EEE legislation which could have impact on Companies’ historic B-BBEE ratings.
  • New BBB-EE codes were due for implementation in October 2014 after an initial one-year transition period. However, the implementation date has been extended to 30 April 2015 to allow companies to make the transition and ensure they are not adversely affected by the new B-BBEE codes.
  1. What are the main B-BBEE changes?

4.1   The elements

  • Historically B-BBEE legislation focused on seven elements or methods of empowerment, which were classified according to three different approaches of empowerment:
Previous elements of the
B-BBEE Scorecard
Empowerment approach
1 Black Ownership Direct empowerment
2 Management Control
3 Employment Equity Human Resources Empowerment
4 Skills Development
5 Preferential Procurement Indirect Empowerment
6 Enterprise Development
7 Socio-Economic Development

 

  • The seven elements have been reduced to five elements:
    • Management Control’ and ‘Employment Equity’ have been merged under ‘Management Control’. Note that the focus on Employment Equity has not been removed by the merge.  Employment Equity remains an important focus of this element.
    • The ‘Preferential Procurement’ and ‘Enterprise Development’ elements have been merged into one element called ‘Enterprise and Supplier Development’.

 

7 ELEMENTS 5 ELEMENTS
Previous element of the
B-BBEE Scorecard
New elements of the
B-BBEE Scorecard
1 Black Ownership 1 Black Ownership
2 Management Control 2 Management Control
3 Employment Equity
4 Skills Development 3 Skills Development
5 Preferential Procurement 4 Enterprise and Supplier Development
6 Enterprise Development
7 Socio-Economic Development 5 Socio-Economic Development

 

  • The total score has increased from a previous 100 to 105:
5 ELEMENTS  
New element of the
B-BBEE Scorecard
New
weighting
 
1 Black Ownership 25 points Priority Element
2 Management Control 15 points  
3 Skills Development 20 points Priority Element
4 Enterprise and Supplier Development 40 points Priority Element
5 Socio-Economic Development 5 points  
  TOTAL POINTS 105 Points  
  • From the 5 new elements, 3 have been identified as priority elements (due to poor progress in these areas) and minimum threshold requirements (40%) have been introduced as a result. These are:
    • Black Ownership
    • Skills Development
    • Enterprise and Supplier Development.

4.2 The various enterprises

  • B-BBEE legislation differentiates between 3 types of enterprises, with varying degrees of required compliance:
    • Exempted Micro Enterprises (EMEs)
    • Qualifying Micro Enterprises (QMEs)
    • Large Enterprises
  Exempted Micro Enterprises

EMEs
Qualifying Micro Enterprises
QMEs
Large Enterprises

LARGE

Threshold R10m R10-R50m R50m
% of Companies 95% of Companies 3% of Companies 2% of Companies
Required Compliance No Compliance Relaxed Compliance Full Compliance
  • The majority of Companies (up to 95% as can be seen from above) are exempted from B-BBEE compliance.
  • The thresholds for the various enterprises have been increased and are now as per the turnover thresholds above.
  • The new elements will increase the status of black owned EMEs and QSEs.

4.3 Exempted Micro Enterprises (EMEs)

  • An EME is deemed to have a B-BBEE status of a Level 4
  • Despite the above enhanced recognition is possible:
    • an EME that is 100% black owned qualifies as a Level 1 contributor;
    • an EME that is at least 51% black owned qualifies as a Level 2 Contributor; and
    • an EME is allowed to be measured on the B-BBEE scorecard to maximise their points and improve their level.

4.4 Qualifying Small Enterprises (QSEs) and Large Enterprises

  • Enhanced recognition exists for QSEs (similar to EMEs):
    • a QSE that is 100% black owned qualifies as a Level 1 contributor;
    • a QSE that is at least 51% black owned qualifies as a Level 2
  • QSEs and Large Enterprises must comply with the priority elements as explained below.

 

4.5 Priority elements and thresholds

  • QSEs must comply with AT LEAST 2 OF THE 3 PRIORITY ELEMENTS:
    • Ownership is compulsory AND
    • Either Enterprise Supplier Development OR Skills Development.
  • LARGE ENTITIES must comply with ALL 3 PRIORITY ELEMENTS.
  • Entities who do not meet the minimum thresholds in the priority elements (i.e. 40%) will be scored as normal, but their OVERALL SCORE will be discounted as follows:
    • Large Entities –           Two (2) levels down
    • QSEs –           One (1) level down
  1. Why is Employment Equity important for B-BBEE scoring?

  • The element of Management Control now incorporates Employment Equity Act compliance.
  • Management Control contributes 15 points to the total of 105 which is broken down as follows:
    • 6 points – exercisable voting rights of Black Females and Blacks; and
    • 9 pointsemployment representation of Black Females and Blacks in Top Management, Senior Management and Middle Management Occupational levels; as well as employment representation of Black Disabled staff as a percentage of all employees.
  • Significant Employment Equity progress is required by Companies to leverage on the majority points of the Management Control element. The compliance targets as per below are aligned with the Economic Active Population demographics:
Measurement Category & Criteria Weighting Point Compliance Target
Black top management as % of all such employees 2 50%
Black female top management as % of all such employees 1 25%
Black senior management as % of all such employees 1 60%
Black female senior management as % of all such employees 1 30%
Black professionally qualified and experienced specialist and mid-management as % of all such employees 1 75%
Black female professionally qualified and experienced specialist and mid-management as % of all such employees 1 38%
Black disabled employees as a % of all employees 2 2%

 

  • EE compliance at junior levels has been removed from the B-BBEE scorecard.
  • EE directly contributes 9% (9/105 points) to the total potential B-BBEE score. Indirectly it contributes 14% (15/105 points) as Employment Equity progress also impacts on board membership and voting rights (hence it all has been merged under one element).
  • It will therefore be short-sighted to neglect this important empowerment initiative.
  1. Why is Skills Development important for B-BBEE scoring?

  • The element of Skills Development is now a priority element.
    • A minimum level of 40% compliance is required.
    • If the threshold is not achieved, the entity will still score whatever actual point it achieve on this element, BUT the overall score will be discounted downwards (by 1 or 2 levels as previously explained).
  • The main changes to the Skills Development criteria include the following:
    • The Learnership sub-element have been broadened to include apprenticeships and internships;
    • The learning matrix have been revised to only recognise targeted training;
    • Training initiatives have been broadened to encompass the unemployed;
    • It has introduced a leaner absorption target.
  • The Skills Development criteria are as follows:
Measurement Category & Criteria Weighting Point Compliance Target
Skills Development Expenditure on Learning Programmes specified in the Learning Programme Matrix for black people as a % of Leviable Amount 8 6%
Skills Development Expenditure on Learning Programmes specified in the Learning Programme Matrix for black disabled people as a % of Leviable Amount 4 0.3%
Number of black people participating in Learnerships, Apprenticeships, and Internships as a % of total employees 4 2.5%
Number of unemployed black people participating in Learnerships, Apprenticeships, and Internships as a % of total employees 4 2.5%
Number of black people absorbed by the industry at the end of the Learnership programme Bonus point of 5 100%

 

  • Note the following pertaining to Skills Development Expenditure:
    • Skills Development Expenditure may include any legitimate expenses incurred for any Learning Programme offered by the Entity to its employees evidenced by an invoice or appropriate internal accounting record.
    • Legitimate training costs such as accommodation, catering and traveling may not exceed more than 15% of the total value of the Skills Development Expenditure.
    • Salaries of Learners who participate in Learnerships, Apprenticeships (Cat B, C and D) and Internships form part of Skills Development Expenditure.
    • Legitimate reasonable training expenses include:
      • Costs of training materials;
      • Costs of trainers;
      • Costs of training facilities, including catering;
      • Scholarships and bursaries (if unconditional);
      • Course fees;
      • Accommodation and travel;
      • Administration costs such as organisation of training; and costs pertaining to the employment of a SDF and Training Manager.

 

  1. For More information from the DTI, refer to the below:
  1. Contact Bruniquel & Associates

For assistance with your Employment Equity and Skills Development initiatives to maximise on your B-BBEE rating, contact Bruniquel & Associates.

This article was prepared by:

Rene de Waal                                             

Bruniquel & Associates