On 11 October 2013, the Department of Trade and Industry (DTI) gazetted the revised Codes of Good Practice in terms of which entities are scored in compliance with the Broad-Based Black Economic Empowerment Act. The revised code will impact on both big and small business in terms of how their scorecards are to be compiled. The effect of the new codes on business as a whole is still in debate – some commentators have suggested that smaller, white owned businesses as well as certain charitable organisations are adversely affected in terms of the new codes. Whether this is true remains to be seen. However, companies with controlling black ownership will definitely benefit in terms of the new codes, as will charities supporting war veterans.
The new codes
These are fairly similar to the old codes, although some weightings and some of the elements have been changed. Whereas previously there were 7 elements, there are now 5 to be applied. However they still contain mostly the same indicators as before.
The 5 elements are:
Ownership
This has not changed significantly – targets are still 25% black ownership but the weighting has increased from 20 to 25 points (out of a potential total 105 points).
Management control
The previous codes contained 2 elements – management control and employment equity. Both have now been combined into a single element with substantially the same indicators. The combined rating for this element is now 15 points, which is less than the combined rating of the previous codes.
Skills development
Pleasingly, the weighting for this element has increased to 20 points and the learnership sub-element has broadened to include apprenticeships and internships. The compliance target has increased from 3% of payroll to 6%, which should hopefully stimulate the training of black people in learning programmes.
Enterprise and Supplier Development (ESD)
Preferential procurement and enterprise development have been merged into a single element, with weighting points set at 40. There is an added incentive for procurement from suppliers who are Exempted Micro Enterprises (EME) and Qualifying Small Enterprises (QSE), as well as procurement from suppliers who are 50% black owned or 30% black woman owned.
Socio Economic Development
This score weighting remains unchanged at 5 points.
The total score will now amount to 105 points instead of the previous 100.
Priority elements
A new feature of the code is that it introduces the concept of priority elements, namely ownership, ESD and Skills Development. Large entities have to comply with all three of these priority elements, failing which their overall score will be reduced by 2 levels. QSEs have to comply with the ownership level and one of either ESD or development skills, failing which their score will be reduced by 1 level.
Enterprise thresholds
The turnover thresholds for EMEs and QSEs have been adjusted as follows:
- EME increased from R5 million to R 10 million
- QSE – was R 5 million to R 35 million, now R 10 million to R 50 million
- Large entities – R 50 million and above
EMEs are still automatically level four contributors and can obtain this rating by means of an affidavit. Contact Meredith Harington for assistance regarding the form, content and preparation of this affidavit. QSEs and EMEs with black ownership of more than 51% will automatically qualify as level 2 contributors and those with 100% black ownership are automatically level 1 contributors. Start up enterprises will still be measured as EMEs during the first year following formation of the entity.
It is possible therefore for entities to receive a lower rating even though their overall score has not changed. There will be a twelve month period from 11 October 2013 to 10 October 2014 during which businesses can choose to have their scorecards compiled and verified under either the old or new codes. The intention is to give entities time to align and implement their BBBEE strategies to comply with the new codes. Thereafter, the new codes will be in full effect. It remains to be seen whether this will give business sufficient time to align their BBBEE policies.
BBBEE is no doubt complicated and difficult to follow at the best of times. If you have any queries or concerns regarding your scorecard or BBBEE level please contact us for further assistance.