By Saul Symanowitz: Divisional Director, BEE 123 by Pastel
SMEs and BEE
Whilst there is no universal definition for what constitutes an SME (Small and Micro Enterprise),for BEE purposes most SMEs would be classified as EMEs (businesses with a turnover of below R5 mil pa) or QSEs (businesses with a turnover of a turnover of between R5 mil and R35 mil pa).
BEE for EMEs
As mentioned EMEs are exempt from the provisions of BEE and are automatically deemed to be BEE compliant.
EMEs therefore can continue to operate as they always have, with the status quo of their businesses remaining in place. No adjustments at all are necessary, and EMEs can therefore focus on the business of doing business and not BEE
The only thing EMEs will need to do for BEE purpose is obtain an EME BEE certificate, which is a quick and relatively cheap process. Once they have this certificate, they are able to reap the full benefits of being BEE compliant.
BEE for QSEs
As mentioned, QSEs are only measured against four of the seven BEE elements with each counting 25 points. What this means is that QSEs get to choose the four elements that make it easiest to get a really good BEE score in terms of their particular structure and requirements. Or alternatively viewed, they can quite validly leave out the three BEE elements they do not wish to engage with.
In my view, government has taken a very practical approach to how BEE is applied to QSEs, having taken into consideration the very real challenge of business survival and that many QSEs are in fact, family owned businesses.
So, how does a QSE business know which are the best four factors for its BEE scorecard? Lets unpack each of the seven elements and see…
Ownership measures equity held by black people in the business. For black owned businesses, this element will definitely be one of the four selected but for most white owned businesses it needn’t necessarily be a priority factor.
If you do select Ownership, it’s important to consider your structure. For QSEs, no additional points are allocated for black female owners but under the generic scorecard for larger businesses they are. So, if it’s possible, QSEs should structure their equity transactions in line with the requirements of the generic scorecard, so that no restructuring is needed in the future.
This refers to black participation in top management. While a single appointee at this level can often have a significant effect on a BEE score, such appointments must be legitimate. Don’t forget that fronting may be criminalised under the current draft B-BBEE Amendment Bill!
Employment Equity measures the percentage of black staff employed in the business. The composition of one’s staff is not something that can be quickly changed, so the implementation of an Employment Equity strategy is often rolled-out as a long term commitment to transformation. However, if you employ black people at any level, and particularly black females, it may be worth including this element in your score card.
This element is designed to improve the skills of black employees. QSEs should be spending 2% of the annual wage bill on training, so depending on the size of your salary expenses and the importance the business places on up-skilling staff, this may be a worthy element to select as part of your scorecard.
But bear in mind that the BEE Codes require strict adherence to labour legislation such as compliance with the Skills Development Act, registration with a SETA, etc before you can earn any points under this element. So, ensure that your ‘labour’ ducks are in a row; otherwise all effort and expense taken on training might not be recognised for BEE scorecard purposes.
This refers to the BEE status of all suppliers. The more empowered your suppliers, the more points your business will earn on its scorecard. So, preferential procurement is a relatively easy way to score BEE points; you just need to buy goods and services from companies that are BEE certified. But from a practical perspective this element is probably the most administratively intensive, as it requires collecting the BEE certificates of every supplier.
Enterprise Development (ED) is designed to create sustainable small black owned businesses. QSEs are required to contribute 2% of their net profits after tax towards ED beneficiary businesses. Compliance with this element is relatively easy as it requires no restructuring and points can be earned by ‘writing a cheque’, should the business so desire. In order to ensure return on your ED investment however, instead of contributing to unrelated third parties, see if there are any ED beneficiaries within your own supply chain (your clients or suppliers) that you can develop.
Socio Economic Development
Socio Economic Development (SED) is grassroots development that brings black people into the economy as active participants. QSEs are required to contribute 1% of their net profits after tax towards SED beneficiary businesses. Like ED, simply ‘writing a cheque’ can get you points but it’s worth aligning your CSI initiatives with this element. To earn BEE points from making contributions to charities or similar organisations, black people must constitute at least 75% of the beneficiaries supported by the organisation. In order to avoid unnecessary admin and complications when being audited, make sure that the organisation that you support has been issued with a Beneficiary Analysis Certificate, a special type of BEE certificate which examines the demographic composition of the beneficiaries.
Whatever your attitude towards BEE is-whether viewed as tax of sorts, additional compliancy requirement or as a tool to achieve genuine transformation in the workplace- BEE is here to stay.
The good news for you if you are an SME owner that BEE is far simpler and less onerous to implement than you probably had realised.
About BEE123 by Pastel
BEE123 is a newly launched division of Softline Pastel.
BEE123 is South Africa’s leading a one-stop BEE Portal that offers a complete range of useful tools, software, news, information and BEE network partners ensuring that BEE is easy to understand and implement. Developed using Softline Pastel’s infrastructure, and with a partner network of South Africa’s leading Verification Agencies and BEE service providers, BEE123 is at the cutting-edge of the BEE services industry.
Tel: 0861 BEE123 (233 123)