BBBEE – What You Need To Know For Your Business

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At a meeting some time ago with one of my clients they pointed out a fact that I up until then had been completely unaware of.  They pointed out that throughout the life of our partnership we at Emerging Search Consultants had placed over 13 new employees with them which made them very happy (and made me very happy too I might add).  But that wasn’t the point that interested me; of those 13 candidates, all were BEE candidates in highly skilled roles.  They pointed out that our organisation had a unique insight into both the B-BBEE legislative requirements for their business which was extremely useful; but our global database also allowed us to access those candidates with the skills and culture fit they required, who also met their BEE requirements.

It was off the back of this insight that we have decided to launch a new division of ESC, and I’m delighted to announce that Emerging BEE is now operational with dedicated consultants to help our clients’ source skilled BEE candidates from around the world.  I also wanted to take some time this month to both remind my network of the new changes to the B-BBEE codes, and what it means for your businesses.

New changes to the B-BBEE codes of conduct have made significant impact on business in the recent months.  It is important to keep up to date with the latest changes to B-BBEE legislation that may cause your company to suffer penalties, and also to ensure that you are making the most of these updates. The categories for compliance are condensed from seven to five, three of which are priority elements and must be complied with.

The following are the key five areas of BEE compliance every business should be aware of:

Ownership

Proof of shares in previously disadvantaged individual’s (PDI’s) hands.  A share certificate for example will need to be submitted for this purpose.  This is regarded as a priority element and failure to comply with the minimum target (40% of Net Value) will result in the Level as obtained above being discounted.

Management

Proof of historic disadvantageousness (men/women) in top/senior/middle/junior management. Interviews will be held to confirm seniority, job description, salary etc. Submission of an EE report and the involvement of PDI’s in the organisation on different levels and categories.

Skills development

Proof of training spend on PDI’s  employees or non-employees and accredited programs such as apprenticeships, learnerships and internships and mentorship programs.  This is regarded as a priority element and failure to comply with the minimum target of 40% will result in the Level as obtained above being discounted.

Enterprise and supplier development

Proof of purchases from current and suppliers that are BEE compliant and Empowering Suppliers as a percentage of total procurement spend. Aiding SMME’s and emerging entities owned by PDI’s to trade in the mainstream economy. An example is setting up a CC and contracting such an entity to provide products. This is regarded as a priority element and failure to comply with the minimum target 40% in all categories will result in the Level as obtained above being discounted.

Socio-economic development

Social contributions towards own employees, employees families and communities such as paying employees children’s school fees and contributions towards black sports teams.

So what does this mean for your business?

Previously, a company might be entirely white-owned but could achieve good BEE levels in areas such as employment equity, skills development, preferential procurement, socioeconomic development or enterprise development.

One such priority element, with a weighting of 40%, is a minimum 10% black shareholding and must be fully paid for to earn the maximum points. If a company does not comply with the ownership element, it is discounted one broad-based black economic empowerment level.

Interestingly, these changes to the legislation mostly affect small and medium sized businesses, rather than JSE listed companies.

Exempt micro enterprises (EME) will benefit from the amendments, which allow these companies to be classified as such if their turnover is less than R10 million a year (up from R5 million) and which gain an automatic broad-based BEE level 4 status even if it has no black ownership.

According to the Mail and Guardian:

The broad-based BEE levels range from one (the highest) down to eight or noncompliance. As before, compliance with the Broad-Based Black Economic Empowerment Act and codes remains voluntary.

As with the previous legislation, businesses need to comply if they wish to be eligible for government tenders or to work with any government-funded businesses. They score higher points in the tender process if they have a good broad-based BEE level. This is in accordance with the Preferential Procurement Policy Framework Act. Another way of ensuring further compliance is to ensure these companies use suppliers who are BEE compliant as well.

The practice of fronting has also now been officially criminalised, and the penalty is up to 10% of turnover or for individuals, up to 10 years in jail.  According to the department of trade and industry “fronting” means a circumvention or attempted circumvention of the broad-based BEE Act and the codes.

So how can you ensure that your business is B-BBEE compliant, and you are able to secure the best talent for your company, without facing penalties?

Find the right candidate, not just the BEE candidate

Focusing simply on trying to find BEE candidates, rather than finding the right candidate with experience will ultimately be detrimental to your business.  You might get points in the short term which may help you secure tenders and government work, but in the long run, it will mean that you have to rely on additional resources if that employee cannot fulfill the basic duties required of them. Focus on finding the right employees, and the work will come.

Identify talent within your organisation

Finding talent within your organisation that you can either upskill, give shareholder rights to and even groom for senior management can go a long way to contributing to your BEE status, whilst ensuring that you create opportunities within your organisation for people you already trust. It is important to develop a programme early on that helps identify candidates you want to upskill and train.

Don’t try trick the system

Fronting now brings with it serious penalties. The practice of fronting can involve window-dressing (the act of appointing token black candidates, but excluding, limiting or discouraging them from the day-to-day running of the business, and/or their core duties); benefit diversion (initiatives implemented where the economic benefits received as a result of the B-BBEE Status of an enterprise do not flow to black people in the ratio as specified in the relevant legal documentation) or opportunistic intermediaries (includes enterprises that have concluded agreements with other enterprises with a view to leveraging the opportunistic intermediary’s favourable B-BBEE status). For more information on fronting, see the DTI’s site on fronting HERE.  Your business can avoid gaining a penalty by understanding exactly what fronting is and how to avoid it.

Find the right partner

The right recruitment partner can help you source candidates easily and without hassle. This will save you time and money, ensuring that you can spend valuable resources in the right place (time, money etc). Working with a partner who specialises in sourcing BEE candidates will ultimately be far more convenient for you as a business than trying to dedicate your own resources to finding candidates. Not only will the right partner have knowledge of your industry, they will likely have access to databases and tools to help you secure the right talent.

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