19 Jun 2018

New Rules for B-BBEE

by Erika Holmes, Partner, Durban,
Practice Area(s): B-BBEE |

Soon 51% black-owned large enterprises will be level 2; and "At least 30% black-women owned" finally means "at least" and not "more than"!

1. DTI has recently published 3 proposed amendments to the generic Broad-Based Black Economic Empowerment (“BBBEE”) Codes of Good Practice on 29 March 2018 and 15 June 2018.  These, in summary, provide that:

1.1 automatic recognition levels will be given to 51% and 100% black-owned large entities with annual turnovers exceeding R50m, (but not if the modified flow-principle or any exclusion principle or Sale of Assets or Once-Empowered, Always Empowered principle are used) exactly as EME's and QSE's currently are given. i.e. 51%/+ black-owned = automatic Level 2 BEE status and 100% black-owned = automatic Level 1 BEE status;

1.2 a new concept of “Youth Employment Service / Y.E.S” companies will be created, entitling such an entity to move up 1 or 2 BEE recognition levels and to qualify, the entity must:

1.2.1 meet the 40% sub-minimums for each priority element OR meet an average of 50% (if generic) across the 3 priority elements or an average of 40% (if QSE) in 2 of the 3 priority elements including ownership; and

1.2.2 improve its BEE score each year; and

1.2.3 score full points on of the Skills Development Scorecard (if a generic); and

1.2.4 give 12-month full-time employment contracts to such number of Black youth (18 - 35 years) as determined by the higher of: 1.5% of last year’s headcount; 1.5% of average NPAT in last 3 years converted to headcount by dividing by R55 000; or a target set in a table based on annual revenue or headcount e.g. R50 – 75 mill revenue: target is 6 new black youth jobs; e.g. for QSE’s: 40 – 59 headcount: target is 3 new black youth jobs.

1.2.5 To move up 1 BEE level, the Y.E.S company must meet the target and achieve 2.5% absorption rate.  To move up 2 BEE levels, the Y.E.S company must meet double the target and achieve 5% absorption rate.  The soon-to-be amended definition of "absorption" now requires that the entity secure a "long-term" contract of employment for the individual, which can be with any employer but must be permanent employment "until his mandatory date of retirement", although the statutory LRA provisions would obviously still apply;
1.2.6 The Skills Development element is being revised by: adding a new sub-element with a possible 4 points (with 4 points being removed from other sub-elements), namely: Skills Development Expenditure on Bursaries for Black Students are Higher Education Institutions, where the target is 2.5% of the leviable amount and accommodation, catering, textbooks and travelling costs may be included; reducing the target spend for learning programmes in the matrix from 6% to 3.5% of the leviable amount; clarifying that double-counting is not permitted; raising the percentage of allowable spend on informal and workplace learning programmes from 15% to 25% of total skills development spend.

2. On the procurement side, Code 400 has been amended as follows:

2.1 combining the scores for procuring from Empowering Supplier EME's and QSE's into one score and reducing the max points from a total of 7 to 5 and increasing the target from 15% to 25%;

2.2 increasing the points obtainable from procuring from 51% black-owned suppliers from 9 to 11 and increasing the target from 40% to 50%;

2.3 the amended definition schedule will finally clarify that "at least 30% black-female owned" means "at least" and not "more than" as it is currently defined.  The points and targets for this element are unchanged.