BG301 BEE Explained
Taxco Business Guide
BEE in Business
The objective of this business guide is to highlight the key points of the Broad Based Black Economic Empowerment policy in South Africa, the steps to compliance and how Taxco can assist you therewith and obtain a BEE scorecard for your business.
BEE, or more accurately B-BBEE refers to Broad Based Black Economic Empowerment is a policy of the SA government which encourages companies to help transform the country. BEE is about broad-based activities that benefit black people.
Black Economic Empowerment
Definition: Black means African black, coloured or Indian people who are South African citizens by birth or became a South African citizen before 27th April 1994.
Note that the definition of coloured now also includes Chinese.
BEE compliance is measured by means of a scorecard (a broad based scorecard). The scorecard is based on various elements and your business is measured out of a maximum of 100 points (in some cases it is possible to obtain more than 100 points). The BEE Codes of Good Practice is a government document that describes how the scorecard works.
The elements on which you are rated is what make BEE broad-based. It covers various aspects of the economy, society and the company.
The Seven Elements
- Ownership - this measures the percentage of shares in the business that are owned by black people (as per the definition above)
- Management - the directors and top management of the business
- Employment equity - the employees in the business
- Skills development - this measures the amount of money spent of training of black employees
- Procurement - your suppliers and their scores
- Enterprise Development - your spend on helping other black owned enterprises
- Socio-Economic Development - your spend on assisting charitable organisations
- Once you have calculated a score it gets converted to a LEVEL - so we talk about level 8 or level 7 up to level 1 companies.
Points to Level Conversion
- Above 100 points Level 1
- 85-100 Points Level 2
- 75-85 Points Level 3
- 65-75 Points Level 4
- 55-65 Points Level 5
- 45-55 Points Level 6
- 40-45 Points Level 7
- 30-40 Points Level 8
- Less than 30 Points Non-compliant
Types of Companies
The codes define three types of companies:
EME - exempt micro enterprise - a company that has an annual turnover of less than R5 million. These companies are automatically given a BEE score of 65 points (level 4), and if majority black owned, level 3
QSE - Qualifying Small Enterprise - an enterprise with an annual turnover of between R5 million and R35 million. The QSE will need to fill in a scorecard, but must choose only 4 of the 7 elements.
Generic - all companies with a turnover above R35 million per annum. They need to comply with the seven elements of broad based black economic empowerment.
Why a BEE Scorecard?
To earn BEE points on Preferential Procurement a company needs to ask it's suppliers for their BEE scorecard. In short one company will ask another company for their scorecard until all companies have a BEE scorecard of their own.
How long does it take?
B-BBEE is a 10 year process. Any companies wanting to produce a scorecard must realise that the targets are not meant to be reached today, it is a process that should take 10 years. The idea is to get a score and over a period of time improve it. Remember - BEE and becoming BEE compliant is a long term goal, you can't become BEE compliant instantly. You need to prepare and work on the scorecard. When you are ready, becoming BEE compliant will become part of the daily running of your business.
The BEE Calculations
The calculations are simple - in each instance you have an indicator. The indicator will have a target and a points available - you need to try and reach the target to earn the points.
EG Socio-economic Development
Goal - spend 1% NPAT of SED to black people
Target 1% NPAT
If you spend 0.5% you will earn 0.5/1% NPAT x 5 points = 2.5
Frequently Asked Questions
Q) Do I need to sell shares to Black People to become compliant?
A) No, if that is all you do you will be non compliant. The scorecard is broad based. This means you need to do other projects to do well on your scorecard.
Q) What penalties do I have if I do not comply?
A) You will not get fined or go to jail if you do not comply. You simply run a risk of not getting the business you desire.
Q) Where can I register for BEE?
A) BEE does not have a registration process. You comply by producing a BBBEE Scorecard. The scorecard will allow you to earn points which in turn will help your customers calculate their own BEE scorecard. Once you have produced a scorecard you can advertise that rating. This may require a registration of a directory which will only happen after you have produced the BEE scorecard.
Q) How many points do I need?
A) As many as your customers need or more than your competition. It depends on your requirements, some industries will need a very high score while others may not even ever need a BEE scorecard. Also note that it takes times to get a good BEE Scorecard. We estimate that the current average score in the marketplace is less than 40 points.
Q) I need a rating – What do I do?
A) The rating is the last step, if you have prepared all your documentation and have earned enough points to get to the level that you require then contact a rating agency - we are consultants, we can however refer you to a verification agency. If you are starting this process then you need to prepare first. Start with a training session, then prepare your own internal scorecard, earn your points, collect documentation and then start the verification process.
Q) How long does it take – I need this by Monday?
A) If you want a very quick scorecard, you can, but you will not earn any points on it. A scorecard can take some time to prepare. We suggest that you start with understanding BEE, then produce an internal scorecard.
Q) My Turnover is below R5 million per annum?
A) You qualify as an Exempt Micro Enterprise - EME. EME's are exempt from BEE.
What does this mean to you - EME's are automatically allocated a good BEE score. You will qualify as BEE compliant (minimum level 4) simply by having a turnover below R5 million.
The proof for an EME is very simple, we can also assist EME's to draw up the correct documentation. If you are below R5 million we can issue you with a exemption and rating certificate. Level 3 or 4, depending on black ownership.
Q) My Turnover is above R5 million per annum?
You qualify as an Qualifying Small Enterprise or a Generic Company - QSE
QSE's need to produce a Broad Based BEE scorecard. They have a simplified scorecard - they can choose any 4 of the 7 available elements. A QSE has a turnover between R5million and R35million.
10 Steps to BEE Compliance
Smart businesses recognise the need for BEE, the really smart businesses have started to implement BEE and take advantage of the business opportunities within BEE. We have prepared the 10 most important steps a business needs to take in order to best implement BEE.
- Learn about BEE
- Look at where BEE is likely to affect you
- Look at the indicators to find ways of scoring points
- Collect documents around the indicators where points can be scored
- Do a rough calculation to find out how many points you have achieved
- Write a report, Scorecard, Profiles, Policies and Strategies around BEE and display your scorecard level
- Spend time and effort and earn the points
- Do a final self rating - must be signed once you are completely happy with it
- Look for ways to find more points on the scorecard
- Not mandatory - get an independent organisation to sign off your scorecard (Auditors or Rating Agencies)
Follow these steps and you will be well on your way to earning points on your scorecard and making your company BEE compliant.
How can Taxco help?
As accountants we may issue EME’s with BEE certificates. For QSE’s and Generic companies we assist our clients with the internal calculations and assist them to find innovative ways to earn points on the BEE scorecard.
For more details, contact us now to discuss how we can assist you to become more BEE compliant.
This Guide is subject to the Terms and Conditions of Use of Taxco Services and their Website.