How to navigate the B-BBEE Codes to improve your scorecard

© Edhar Yuralaits – 123RF.com

There are now only three compulsory categories in the Broad Based Black Economic Empowerment (B-BBEE) Codes. Two of the three codes make it possible to earn considerable tax rebates and points by redirecting mandatory expenditure.

The updated B-BBEE codes came into effect from May 2015. The revised codes have much stricter rules when it comes to the scoring process and harsher implications for business owners.

“The Department of Labour has become more aggressive in implementing the Employment Equity Act 2014, which has far stricter penalties for employers who don’t comply with the act. Many smaller companies without dedicated resources to manage the B-BBEE process have simply thrown up their arms,” explains Botha. Yet the situation can be managed in a manner which can cost them virtually nothing while potentially improving their competitiveness when tendering for certain contracts.

Compulsory categories

The revised codes of Good Practice will most affect companies that have a revenue of more than R10 million. The Codes’ categories for compliance have been condensed from seven to five categories, three of which are regarded as compulsory and must be adhered to in order to be compliant.

Botha identifies the three compulsory categories as Ownership, Skills Development and Enterprise & Supplier Development. The broad-based BEE levels range from one (the highest) down to eight or non-compliance.

She outlines two ways in which companies can benefit from the new Codes at short notice. “If a company registers for learnerships, they can immediately receive R40,000 a learner as a tax rebate. This is provided that the learners find employment after their learnership, are black Africans and under the age of 35. In addition to this rebate at the start of the learnership, companies can receive another R40,000 at its conclusion. The company also pays a stipend to the learners, which similarly gives a tax rebate,” adds Botha.

“Furthermore, companies are required to pay 6% of their payroll towards external training for black South Africans. This amount can also be claimed back with a Workplace Skills Plan (WSP) from SETA,” says Botha.

Enterprise development structure

Another inexpensive means of improving a company’s B-BBEE rating is to better structure its enterprise development. Botha says that most companies are typically doing something and incurring expense in this category without earning the points.

“For instance, companies may occasionally use a contractor, but if that contractor is not a registered company they earn no scorecard points."

Botha says that in particular instances, it is also possible for parties to provide services to the other for which no money passes hands, but which earn points for Code scorecard purposes.

The Codes contain a list of such services which qualify for rand value, including interest-free loans and prepayments for other services. Other services commonly bartered in this manner are the provision of protective clothing and equipment, and in-house skills development.

Innovative BEE Solutions’ first step when consulting with a new client is to evaluate the company and determine its current status and degree of participation. “If a company has an annual turnover of less than R50 million, it is relatively easy to increase their rating even in the current year. However, when the turnover is above R50 million it is usually necessary to restructure it more substantially for an improvement in the following year,” says Botha.

“Many business people regard B-BBEE and labour regulations as onerous on small and medium sized enterprises – and they are often surprised to find how easily it can be used to their advantage,” concludes Botha.