The revisions to Broad-Based Black Economic Empowerment (BBBEE, or BEE) legislation that came into effect in May 2015 continue to cause confusion and anxiety among business owners in South Africa. The original BBBEE legislation comprised the Broad-Based Black Economic Empowerment Act, Number 53 of 2003, and its supplementary, detailed Codes of Good Practice (issued in 2007). The guiding goal of the legislation has always been to effect positive transformation in the business world, addressing the legacy of apartheid and empowering greater black economic participation. The revised Codes see the government taking a more interventionist approach in this transformation, with increased emphasis on black ownership. In this article, we provide an overview of the major differences in the old BBBEE Codes versus the new BBBEE Codes.
The new legislation is quite a bit stricter, especially in its scoring – and the manner of calculating BBBEE compliance levels, or status, has changed in many regards. The number of categories for compliance was seven under the previous legislation: ownership, management control, employment equity, skills development, preferential procurement, enterprise development and socio-economic development. Under the new BBBEE Codes, there are only five categories for compliance; enterprise development and preferential procurement have been merged, as have management control and employment equity. Ownership, skills development and enterprise and supplier development have been prioritised on the points scale.
This translates into a higher number of points being awarded for black ownership, as well as more points for engagement with companies that are involved in employment and social change. The new codes also promote learnerships such as graduate programmes and internships, whereas under the old codes only job creation was emphasised. The new legislation further dictates that up-to 6% (QSE is 3% and Generic is 6%)of the payroll must be earmarked for skills development, compared to just 3% under the old legislation (Gender recognition will also be taken into account on Generic Entity above 50 mill turnover)
The new codes may make it more difficult to obtain high BBBEE compliance rankings, and some companies may have been concerned about being downgraded based on the adjusted points calculations when the new laws came into effect. In addition, preferential procurement may be challenging. However, with careful revision and the assistance of a BBBEE consultant, companies can get back, and stay, on track.
A major difference in the old BBBEE Codes versus the new BBBEE Codes is that “fronting” – that is, pretending to be compliant, or otherwise providing false information related to BBBEE, is now a crime, punishable by jail time and or fines. Under the new legislation, compliance with BBBEE remains entirely voluntary; it is only fraud that is punishable. Compliance is highly recommended as it can greatly facilitate the success of a business in South Africa, particularly if they are considering working with government or public entities.
Positive differences when looking at the old BBBEE Codes versus the new BBBEE Codes are found in the realm of smaller businesses. Companies with an annual turnover of R10 million or less now qualify as Exempt Micro Enterprises (EMEs), and are awarded automatic Level 4 status (Level 1 indicates maximum BBBEE compliance, while Level 8 is the lowest) even if there is no black ownership. Should they have 100% black ownership, they will be upgraded to Level 1 status. This is a big change, as the threshold for qualifying as an EME was previously limited to R5 million or less.
Companies with annual revenue of between R10 million and R50 million are now classified as Qualifying Small Enterprises (QSEs), whereas previously the range was R5 million to R35 million. While QSEs only had to comply with four categories under the old legislation, they are now obliged to comply with all five. If they are 51% black owned they can be awarded Level 2 status; 100%, Level 1. Neither EMEs nor QSEs ( in the case of the latter, as long as they have at least 51% black ownership) need official verification by a BBBEE agent – an affidavit setting out their annual income and black ownership details is sufficient.
A further change to note is that the new BBBEE Codes provide for a BBBEE Commission to oversee complaints and perform an advocacy role. South African listed entities are required to submit compliance reports to this Commission.