The New B-BBEE Codes – What they mean for business

Presenter: Anton de Wet CA(SA)Specialist B-BBEE Auditor and Trainer

DISCLAIMER

Whilst every effort has been made to ensure the accuracy of the seminar, presentation and handouts, the presenters/authors , the organisers and the Association of Chartered Certified Accountants do not accept any responsibility for any opinions expressed by the presenter/author, contributors or correspondents, nor for the accuracy of any information contained in the seminar handouts.

@ COPYRIGHT

Copyright of this material rests with SA Accounting Academy and the documentation or any part thereof, may not be reproduced either electronically, photocopied, scanned, typed, hand-written or in any other means whatsoever without the prior written permission of SA

Accounting Academy.

The benefits of B-BBEE compliancy

• Retaining market share

• Competitive advantage (preferred supplier)

• New growth opportunities (tenders)

• Economic growth (spending power)

• “Licence to do business” in South Africa?

Turnover Thresholds

Old Codes (R million) New Codes (R million)

Exempted Micro-Enterprise (EME) 0 – 5 0 – 10

Qualifying Small Enterprise (QSE) 5 – 35 10 – 50

Generic 35 + 50 +

What drives BEE?

5

Mainstream Economy

SupplierSupplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

SupplierSupplierSupplier

Supplier

Supplier

SupplierSupplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

SupplierSupplier

Supplier

Supplier Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

SupplierSupplier

Supplier

Weightings

Element Weighting (Old Codes)

Weighting (New Codes)

Ownership 20 25Management Control 10 15Employment Equity 15 -Skills Development 15 20Preferential Procurement 20 -Enterprise and Supplier Development

- 40

Enterprise Development 15 -Socio-Economic Development

5 5

Total 100 105

Contribution LevelsB-BBEE Status Qualification

points (Old Codes)

Qualification points (New Codes)

B-BBEE Procurement Recognition Level

Level 1 Contributor ≥100 ≥100 135%

Level 2 Contributor ≥85 but <100 ≥95 but <100 125%

Level 3 Contributor ≥75 but <85 ≥90 but <95 110%

Level 4 Contributor ≥65 but <75 ≥80 but <90 100%

Level 5 Contributor ≥55 but <65 ≥75 but <80 80%

Level 6 Contributor ≥45 but <55 ≥70 but <75 60%

Level 7 Contributor ≥40 but <45 ≥55 but <70 50%

Level 8 Contributor ≥30 but <40 ≥40 but <55 10%

Non-compliant Contributor

< 30 points < 40 points 0%

General Amendments•7 elements reduced to 5•Management Control and Employment Equity consolidated into Management Control•Preferential Procurement and Enterprise Development consolidated into Enterprise and Supplier Development•3 Priority Elements with 40% sub-minimum targets:

- Ownership

- Skills Development

- Enterprise and Supplier Development•Large Enterprise to comply with all 3 Priority Elements to avoid 1 level discounting•QSE to comply with Ownership and either SD or ESD to avoid 1 level discounting

General Amendments (continued) •EME less than 51% black-owned automatic level 4•EME and QSE 51% or more black-owned only need to obtain a sworn affidavit confirming turnover and black ownership; no verification required; automatic level 1 (51%+) or 2 (100%)•QSE less than 51% black-owned need to comply with all 5 elements subject to discounting – verification is required similar to Large Enterprise•Adjusted Recognition for Gender removed; black woman are separately scored•In first year (until 11/10/2014) entities may opt to apply new codes, thereafter compulsory•Only one scorecard for QSE’s and Large Enterprises

Ownership

•Sub-minimum to avoid discounting is 40% of Net Value points

•Points increased from 20 to 25 points

•Shareholding by Family Trusts clarified

•Only SA based and regulated mandated investments qualify

•More emphasis on:

- Employee Share Ownership Programmes

- Broad-based Ownership Schemes

- Co-operatives

•Black New Entrant threshold was R20m, now R50m

•Entities applying the Modified Flow Through cannot also apply the Exclusion principle

Criteria/Indicator

Weighting points

(Old Codes)

Compliance target

(Old Codes)

Weighting points

(New Codes)

Compliance target

(New Codes)Voting Rights:Exercisable Voting Rights of black people 3 25% + 1 vote 4 25% + 1 voteExercisable Voting Rights of black women 2 10% 2 10%

Economic Interest:Economic interest of black people 4 25% 4 25%

Economic interest of black women 2 10% 2 10%

Economic interest of black natural people in Designated Groups; Employee Ownership Schemes; Broad-based Ownership Schemes; Co-Operatives

1

2,5%

3

3%

Involvement in ownership of black new entrants - - 2 2%Realisation Points:Ownership fulfilment 1 No

Restrictions

0 0

Net ValueTime-based graduation factor: 10% of Target (Year 1)20% of Target (Year 2)40% of Target (Year 3-4)60% of Target (Year 5-6)80% of Target (Year 7-8)100 % of Target (Year 9-10)

7

25%

8

25%

Bonus Points:Involvement in ownership of black new entrants 2 10% 0 0%

Involvement in ownership of black participants in Employee Ownership Schemes; Broad-Based Ownership Schemes; Co- operatives

1

10%

0

0%

Total 20 + 3 Bonus Points

25

Management Control

•Now includes Employment Equity

•Targets now takes the demographic breakdown of race-groups into consideration in terms of the Regulations of Employment Equity Act and the Commission on Employment Equity Report

•Must use current payroll data

•Must submit EEA returns if “designated employer”

Criteria/Indicator

Weighting points

(Old Codes)

Compliance target

(Old Codes)

Weighting points

(New Codes)

Compliance target

(New Codes)Board Participation:Exercisable Voting Rights of black Board members 3 50% 2 50%Exercisable Voting Rights of black female Board members

0 0% 1 25%

Black Executive Directors 2 50% 2 50%Black female Executive Directors 0 0% 1 25%Other Executive Management:Black Executive Management 3 40% 2 60%Black female Executive Management 0 0% 1 30%Black Other Top Management 2 40% 0 0%Bonus point for Black Independent Non-Executive Board Members

1 40% 0 0%

Disabled EmployeesBlack Disabled employees as a percentage of all employees

0 0% 2 2%

Senior Management:Black employees in Senior Management 0 0% 2 60%Black female employees in Senior Management 1 30%Middle Management:Black employees in Middle Management 0 0% 2 75%Black female employees in Middle Management 0 0% 1 38%Junior Management:Black employees in Junior Management 0 0% 1 88%Black female employees in Junior Management 0 0% 1 44%Total 10 + 1 bonus

points

19Should be 15

Criteria/Indicator Weighting points

(Old Codes)

Target(Old Codes)

Weighting points

(New Codes)

Target(New

Codes)

Black Disabled employees as a percentage of all employees

2 3% 0 0%

Black employees in Senior Management 5 60% 0 0%

Black employees in Middle Management 4 75% 0 0%

Black employees in Junior Management 4 80% 0 0%

Bonus for meeting or exceeding the EAP targets per category

3 0

Total 15 + 3 bonus points

0

Employment Equity (no longer a separate element)

Skills Development•Sub-minimum to avoid discounting is 40% of total weighting points •Main target significantly increased from 2/3% to 6% of “Leviable Amount” (annual payroll)•Now 4 points available for training black unemployed people •5 Bonus points available for absorbing registered learners as permanent staff•Targets now takes the demographic breakdown of race-groups into consideration in terms of the Regulations of Employment Equity Act and the Commission on Employment Equity Report

Skills Development (continued)

•Must meet SETA requirements to qualify

•Category F (uncertified) and Category G (in-house) training both capped at 15% of total skills spend

•Legitimate training expenses such as accommodation, catering and travel expenses also capped at 15% of total skills spend

•Mandatory sector training does not qualify

•International training must meet SAQA requirements

Criteria/Indicator

Weighting points

(Old Codes)

Compliance target

(Old Codes)

Weighting points

(New Codes)

Compliance target

(New Codes)

Skills Development Spend on Learning Programmes

Skills Development expenditure 6 3% 8 6%

Skills Development expenditure for black employees with disabilities

3 0.3% % 4 0.3%

Learnerships:

Number of black employees participating in Learnerships, apprenticeships or internships

6 5% * 4 2.5%

Number of unemployed black people participating in Learnerships, apprenticeships or internships

0 0% 4 2.5%

Bonus point for number of Black People absorbed at the end of the learnership

0 0% 5 100%

Total 15 20 + 5 Bonus Points

Enterprise and Supplier Development (continued)

•Sub-minimum to avoid discounting is 40% in each of the three main indicators of the ESD scorecard

•“Value-adding Supplier” concept replaced with “Empowering Supplier”

•ESD contributes to 40 of the total 105 points

•10 points for developing suppliers

•5 points for developing other black businesses

•21 of the 25 points for procurement only allocated to spend with Empowering Suppliers

•EME’s and Start-ups are automatically Empowering Suppliers

Enterprise and Supplier Development (continued)

•Maximum 1.5 points for early payment of black-owned suppliers

•A three year contract with the following suppliers will result in enhanced recognition of 120% of actual spend:

- Supplier Development beneficiaries

- Black-owned EME’s and QSE’s

- All new suppliers of the measured entity

Criteria/Indicator Weighting points

(Old Codes)

Compliance target

(Old Codes)

Weighting points

(New Codes)

Compliance target

(New Codes)2.1 Preferential Procurement

Broad-based BEE Procurement Spend from all Empowering Suppliers based on the broad-based BEE Procurement Recognition levels as a percentage of Total Measured Procurement Spend of the enterprise

12 70% 5 80%

Broad-based BEE Procurement Spend from all QSE Empowering Suppliers based on the applicable broad-based BEE Procurement Recognition levels as a percentage of Total Measured Procurement Spend for the enterprise

3 15% 3 15%

Broad-based BEE Procurement Spend from all EME based on the applicable broad-based BEE Procurement Recognition levels as a percentage of Total Measured Procurement Spend for the enterprise

4 15%

Broad-based BEE Procurement Spend from any of the following Empowering Suppliers as a percentage of Total Measured Procurement Spend:

suppliers that are 51% black owned; 3 12% 9 40%

suppliers that are 30% black women owned 2 8% 4 12%

Bonus Points

Procurement Spend from Designated group suppliers that are at least 51% black owned

0 0% 2 2%

2.2 & 2.3 Enterprise and Supplier Development

Annual Value of all Supplier Development contributions as a % of Target

0 0% 10 2% of NPAT

Annual Value of all Enterprise Development contributions as % of target

0 0% 5 1% of NPAT

Criteria/Indicator Weighting points

(Old Codes)

Compliance target

(Old Codes)

Weighting points

(New Codes)

Compliance target

(New Codes)

Bonus Points

Graduation from Enterprise Development to Supplier Development Beneficiary

0 1

Jobs created by a supported supplier 0 1

Total 20 40 + 4 bonus points

Criteria/Indicator

Weighting points

(Old Codes)

Compliance target (Old Codes)

Weighting points

(New Codes)

Compliance target

(New Codes)

Value of all Enterprise Development Contributions and Sector Specific Programmes made

15 3% of NPAT 0 0%

Total 15 0

Enterprise Development (no longer a separate element)

Socio-Economic Development

•No changes

•NPO’s may however lose out on donations from QSE’s who will now only score a maximum of 5 points and no longer 25 points

Criteria/Indicator Weighting

points(Old Codes)

Compliance target

(Old Codes)

Weighting points

(New Codes)

Compliance target

(New Codes)

Value of all Socio-Economic Development and Approved Socio-Economic Development Contributions made

5

1% NPAT

5

1% NPAT

Total 5 5

Some areas in need of clarification• Basis for application new codes?• Management Control scorecard - needs to be corrected• “Obtain” a sworn affidavit – from who?• Enterprise Development and Supplier Development Plan in

place for imported goods or services – guidance needed• International training must meet SAQA requirements –

guidance needed• “Trainee tracking tool”?• Applying demographics to skills spend?

• What is exactly is an Empowering Supplier: An Empowering Supplier is a BEE compliant entity which demonstrates that it is a “good citizen South African entity” complying “with all regulatory requirements of the country”. A Large Enterprise must comply with 3 of the following criteria and a QSE with only 1:

• 25% of Cost of Sales, excluding labour and depreciation, must be procured from South African suppliers or producers. (For the service industry labour costs are included but capped at 15%);

• 50% of jobs created must be for black people - provided the number of Black employees since the immediate prior B-BBEE verification is maintained;

• 25% of production must be local production including local manufacturing, and/or assembly, and/or packaging;

• At least 12 days a year must be spent on skills transfer to assist black EME’s and QSE’s to increase their knowledge in operations or financial capacity.

Some areas in need of clarification (continued)

Factors to consider going forward

• Be verified now and before 11/10/2014 and stay compliant for two year more years!

• QSE: Consider donations in February 2014

• The need for BEE consultation

• Plan for higher verification costs

• Start using BEE management software

• Get your accountant/auditor involved!

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