WHAT YOU SHOULD KNOW ABOUT BEE
Much has been said, written, assumed or guessed about black economic empowerment (BEE) since the enactment of the Broad-Based Black Economic Empowerment Act 2003. Things became clearer on 9 February 2007 when the Government formally gazetted the BEE Codes of Practice (Codes). With the Codes now complete it is an appropriate time to revisit the basic principles of BEE and ask, "What must HR Managers know about BEE?"
1. How Does BEE Work?
2. Who Must Comply with
The size of a business is particularly relevant in determining the necessary levels of BEE compliance. The Codes provide for three levels of compliance based on the size of a business:
EMEs are exempt from BEE requirements. No matter what their ownership status (they can be 100% white owned), they are given an automatic preferential procurement rating, which is discussed in more detail below. QSEs and M&Ls must comply with BEE if they want to do business with government (or with a business that has government contracts) and it is important to understand that their obligations may differ in some respects (see, for example, the scorecards in the table below).
What about start-up companies, what level of compliance must they achieve? Start-ups are treated as a QSE, at least for the first year following their formation, regardless of their expected revenue. Given this status as a QSE, start-up companies must submit a QSE scorecard when tendering for any contract over R5 million. However, for contracts valued at more than R35 million, start-ups must submit the M&L scorecard.
3. When Must
4. How Does a
The table above highlights the different compliance obligations between QSEs and M&Ls. As a general rule, it should be easier for QSEs to become BEE compliant than it is for larger businesses.
M&L companies invariably ask why their scorecards equate to 100 points, whereas the QSEs scorecard equals 175? In an effort to ease the burden for smaller companies, they can be assessed on their four strongest elements of their scorecard (hence, 25 points for each of the four elements). This is particularly important for small businesses that may have very few (if any) employees, who would naturally score poorly in the employment equity and skills development elements of the scorecard as a result.
5. Equity Ownership
The scorecard also allows for 'bonus points' that are available if 10% of the company is owned by black women or if 10% is owned by employee ownership schemes, broad-based ownership schemes or cooperatives.
You may notice that the scorecard refers to black "people" and the calculation guides refer to "black participants". Many companies ask us whether this is a natural person or whether a company can be black? For the purposes of the BEE Codes, a company (or closed corporation, partnership or similar entity) can be black, depending on the company's level of black ownership (it must have a black shareholding of more than 50%).
Another frequent question that arises out of this element of the Code is what happens when a black participant exits the business? Is it a case of once empowered, always empowered? The answer is yes, but only under certain circumstances. The recognition of black ownership can be retained if:
For HR Managers, the use of employee ownership share plans may increase given their BEE benefits and HR has an important role in implementing such schemes.
Bonus points are available for companies who have black women on their Board (25% will give the company an extra point) or in top management (20% will give the company an extra point). Companies who have black women as 40% of their senior or top management will score particularly well.
HR departments would be wise to commence a search for potential black directors, particularly if the candidate is female. It is not inconceivable that some companies will assess the worth of their HR Department on its ability to source (and attract) suitable black directors.
M&Ls should aim to reach the following targets to obtain maximum points:
HR Managers should note that, in terms of BEE, employment equity for larger companies is all about black employees occupying management positions. Companies with a majority of black employees will not score well for BEE purposes unless some of those employees are managers. Black drivers or cleaners will not help a company's BEE rating.
QSEs should aim to reach the following targets to obtain maximum points:
For HR Managers of QSEs, the EE Scorecard represents an extension of their employment equity obligations, as QSEs (with less than 150 employees) have been excused of the obligations of reporting racial compositions of each occupational level under the EEA. Some HR professionals will need to quickly up-skill on EE requirements. For others, the BEE scorecard may well represent the future of EE obligations and replace the current obligations contained in the EEA.
QSE's can achieve maximum points for skills development if they spend 2% of the company's total salary bill (per annum) on "learning programmes" for black employees. Though the new Codes don't define what "learning programmes" are, we are advised that it must be a programme in the learning programmes matrix, which is as follows:
An obvious question for HR departments is whether this BEE obligation is covered by the skills development levy? Sadly for employers, the amount is over and above that levy.
For larger companies, the skills development scorecard is similar to QSE obligations but with higher targets. To achieve maximum points, M&Ls must spend 3% of the company's total salary bill on learning programmes for black employees. Additional points can also be achieved if 5% of employees in the company are black employees participating in learning programmes or if the company spends 0.3% of company salary on learning programmes for disabled black employees.
HR Managers would be well advised to keep these targets in mind when assessing their organisation's skills development needs.
The basic principle behind this element of BEE is that when a company buys from a supplier that is "more empowered", it will enjoy greater preferential procurement recognition than it would when buying from a supplier that is "less empowered".
To understand how the procurement scorecard works it is important to consider the following table:
Assume Smith & Jones CC achieved 57 points in the generic scorecard. It will be a Level 5 contributor. If you were to purchase good or services from Smith & Jones CC, you would be able to count 80% of your purchase as preferential procurement.
There are three notable issues arising from the table above. Firstly, one must ask, what exactly is procurement? Essentially, any purchases of goods or services (other than salaries or taxes) amount to procurement. Secondly, companies must realise that not all the money they spend with a BEE Contributor will count as BEE procurement (because of the spend recognition percentages). Finally, no preferential procurement will be recognised (no matter what scale of black ownership) without that company having a valid BEE certificate certifying its contributor status.
To gain maximum points for preferential procurement, a company should:
As mentioned above, EMEs (they can be 100% white owned) are deemed to have a preferential procurement rating of a Level 4 Contributor. Start-up companies are also given this rating.
To earn points for the enterprise development scorecard, you must contribute to a beneficiary company of your choice. The contribution can be monetary (such as a recoverable loan or a discount) or it can be non-monetary (such as advice on management issues). If it is the latter, the contribution will need to be measurable in monetary terms, in order to quantify the level of contribution. In this respect, the contribution must be a 'qualifying contribution', in that it must be a contribution to a 'qualifying beneficiary', which the Codes defines as:
M&Ls can achieve top marks for the enterprise development scorecard if they spend 3% of earnings (before interest, tax & depreciation) on qualifying contributions. QSE's need contribute 2% for maximum points.
HR Managers are well positioned to assess their company's enterprise development opportunities. Contributing in some way to black-owned training companies, payroll companies or recruiters that HR may make use of, is one such example. As compliance experts, WISE has established successful projects on which full points can be acquired under this element (and others).
11. Socio Economic
To achieve maximum points, M&Ls and QSEs must both contribute 1% of their earnings (before interest, tax & depreciation).
Again, HR is well placed to assess industry or community projects that qualify for socio economic contributions.
Like any new regulation, the implementation of BEE is certainly a challenge for business and those that do it better than their competitors will gain significant
Like any new regulation, the implementation of BEE is certainly a challenge for business and those that do it better than their competitors will gain significant advantages in the marketplace. The HR profession has an important role to play to meet those challenges, particularly in relation to the employment equity and skills development elements of BEE.
Information provided herein is used with the permission of Work in Solutions& Equity. Work In Solutions & Equity has been advising clients on their BEE obligations for some time and is well placed to assist with strategies to assist compliance. For further information please call Dee Cranswick on (021) 465 3500.
>> Codes of Good Practice on BEE 2004
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