Broad-Based Black Economic Empowerment, BBBEE or BEE for short, can be a confusing subject to navigate as a business owner. While compliance with BEE legislation is not compulsory, it is highly recommended because of the benefits it can confer on businesses. Particularly for Qualifying Small Enterprises (QSEs), compliance with BEE can give them a competitive edge; allowing them to work with government and public entities, and participate in the chain of preferential procurement. As a result, many QSEs seek certification. In this article, we explore BBBEE verification requirements for a QSE.
BEE policies are regulated by the Broad-Based Black Economic Empowerment Act (Number 53 of 2003), together with the Codes of Good Practice (promulgated in 2007 and revised in 2015). Under this legislation, a QSE is a business with annual revenue of between R10 million and R50 million. This category tends to include many family-run businesses. Not all QSEs need to undergo official assessment to obtain BEE verification.
If at least 51% of the business’s ownership can be shown to be black, the QSE is deemed to be a Level 2 BEE contributor (there are 8 rankings on the BEE scale, with 1 being the highest) and an affidavit attesting to the ownership is sufficient documentation. QSEs with a 100% black ownership are considered Level 1 contributors and also only need to present an affidavit. However, QSEs that do not meet these black ownership thresholds are obliged to show compliance with all five of the categories on the BEE scorecard. These are: ownership, management control, skills development, enterprise and supplier development, and socio-economic development. For QSEs, ownership is a priority element, followed by either skills development or enterprise and supplier development.
A critical part of complying with BEE verification requirements is also being classified as an Empowering Supplier. Without this, a QSE cannot use their BEE certificate for preferential procurement calculations. Regardless of the percentage of black ownership, to qualify as an Empowering Supplier, a QSE must be BEE compliant (these are, as can be seen, interlinked), a “good South African citizen company”, and do least one of the following: source at least 25% of the cost of sales (excluding labour and depreciation) from local suppliers; transform at least 25% of raw material or beneficiation – this includes through local manufacturing, production, assembly or packaging; spend at least 12 days of productivity a year assisting black Exempt Micro Enterprises (EMEs) or QSEs to improve their operations or financial capacity; direct at least 85% of the payroll to South Africans; and ensure that at least 50% of jobs created are for black people, provided that the number of black employees since before verification has been maintained. EMEs, which have annual revenue of R10 million or less, are seen as lucky in that they automatically qualify as Empowering Suppliers.
To ensure that a QSE meets BEE verification requirements, it is recommended that they employ the services of registered BEE consultants. They can perform partial on-site audits to confirm that the QSE complies with the requisite five categories under the legislation (or advise how to do this), as well as the requirements for Empowering Suppliers. It may seem like a lot of work, but obtaining certification at the end of it makes it a worthwhile undertaking.