The amended Codes of Good Practice were issued in October 2013 and implemented in May 2015. On 29 March 2018 the dti issued Government Gazette 41546 which deals with amendments to these codes, specifically statement 000 to code series 000 (General Principles) and statement 300 to code series 300 which deals with Skills Development. They are issued for 60-day comment. A copy of the document can be downloaded. If you have any comments you want sent to the dti, please send to me for inclusion with my comments.
Statement 000 to Code Series 000 – General Principles
The major changes are:
1. Exempted Micro-Enterprises or EMEa.
a. When determining whether the business is 51% black owned or 100% black owned, the Flow Through Principle must be applied. The Modified Flow Though Principal cannot be applied, and an affidavit issued. If, however, the EME believes that they can achieve a higher level if verified as a QSE they may do so and may apply the Modified Flow Through. A certificate will be issued.
b. The B-BBEE Commission issued Guidance Guide 1 of 2017 in which they stated their opinion that, even though the amended codes did not specifically disallow the use of the Modified Flow Though, the use of the Modified Flow through was against the intention of the codes. A concern with the Practice Guide was how an opinion, or guide from the B-BBEE commission, was able to override a gazetted document. The codes are now being amended to be in line with the Practice Guide.
c. Another concern with the Practice Guide was that nothing was said about how entities with structures using the Modified Flow Through, which were created before the 31 March 2017 issue date of the Practice Guide were to be treated. Once this amendment is finalised, such structures must be changed to ensure 51% or 100% black ownership on the flow through to use an affidavit or be scored using a verified certificate.
2. Qualifying Small Enterprises
a. When determining whether the business is 51% black owned or 100% black owned, the Flow Through Principle must be applied. The Modified Flow Though Principal cannot be applied, and an affidavit issued.
b. The B-BBEE Commission issued Guidance Guide 1 of 2017 in which they stated their opinion that, even though the amended codes did not specifically disallow the use of the Modified Flow Though, the use of the Modified Flow through was against the intention of the codes. A concern with the Practice Guide was how an opinion, or guide from the B-BBEE commission, was able to override a gazetted document. The codes are now being amended to be in line with the Practice Guide.c. Another concern with the Practice Guide was that nothing was said about how entities with structures using the Modified Flow Through, which were created before the 31 March 2017 issue date of the Practice Guide were to be treated. Once this amendment is finalised, such structures must be changed to ensure 51% or 100% black ownership on the flow through to use an affidavit or be scored using a verified certificate.
3. Generic Enterprises
a. A generic company (turnover more than R50 million) which is 51% black owned using the Flow Through Principle will be a level 2, and a level 1 if 100% black owned using the Flow Through Principle. All that is required is a certificate verifying the ownership element.
b. This enhanced recognition is not available for generic entities with 51% or more black ownership resulting from:
i. The Modified Flow Through
ii. The Exclusion Principle
iii. B-BBEE facilitator status
iv. Private Equity Funds
v. Exclusion of Mandated investments
vi. Sale of Assets, Equity Investments or other businesses
vii. Ownership after sale or loss of shares.
4. The method of preparation of certificates for unincorporated joint ventures is detailed.
5. B-BBEE recognition is given for companies meeting targets in terms of the Youth Employment Service (YES) Initiative:
a. Generics must:
i. Meet all the subminimums for priority elements or average 50% across the 3 priority elements. It will be difficult for multinationals to obtain these benefits as they will need to score nearly 100% for Skills Development, Supplier Development, Enterprise Development and Socio-Economic Development and get an acceptable score for Procurement to ensure that they average 50% for these priority elements.
ii. Score 100% for the new paragraph 2.1.1.2 on the skills scorecard which deals with bursaries given to black people to attend Higher Education institutions.
b. QSE must:
i. Meet the priority element in 2 of the priority elements, one of which must be Ownership. Alternatively, they must average 40% over 2 of the 3 priority elements, one of which must be Ownership.
c. EME have no subminimum requirements.
d. YES Entities must maintain or improve their BEE level the year before first participating in YES.
6. YES Targets are:
a. Generics must meet a target of the higher of:
i. 1.5% of the company’s head count in the preceding year; or
ii. 1.5% of the company’s average NPAT for South African operations for the immediately preceding 3 years, converted to headcount by dividing the average NPAT by R55,000; or
iii. The target in Annexure A of table 1. This ranges from 6 people for a company with turnover of between R50 and R758 million to 15 people for a company with greater than R500 million sales.
b. QSE and EME must meet targets of:i. In terms of the targets in table 2 Annexure B. The targets range from 1 person if headcount is between 1 and 19, and 40 people if head count is greater than 780. This is likely to be higher than the targets for generics and makes little sense.
c. The following requirements are shown under the requirements for EME and QSE, but would appear to relate to all entities:
i. The new jobs created must be new jobs in addition to existing headcount
ii. If companies are unable to create positions within their headcount, they can sponsor positions at EME or QSE.
d. Employees who meet the following criteria are eligible for the YES Initiative:
i. Between the ages of 18 and 35.
ii. Meet the definition of black as defined in the BEE act.
e. Eligible employees in new positions are:
i. Subject to SA Labour legislation
ii. Must sign fixed-term or temporary employment contracts which give a 12-month full time work experience
iii. Must be clearly told should the contract not be renewed or extended into permanent placement
7. B-BBEE recognition for the YES Initiative:
B-BBEE Recognition
| Achieve YES Target and 2.5% absorption | Increase of 1 level on B-BBEE certificate |
| Achieve 1.5 x YES Target and 5% absorption | Increase of 1 level on B-BBEE certificate + 3 bonus points |
| Achieve 2 x YES Target and 5% absorption | Increase of 2 levels on B-BBEE certificate |
Statement 300 to Code Series 300 – Skills Development
It is proposed to change the scorecard for statement 300 to code series as follows:
| Current Scorecard Compliance Target | Current Scorecard Target Score | Proposed Scorecard Compliance Target | Proposed Scorecard Target Score | |
|---|---|---|---|---|
| 2.1.1.1 Score for Skills Spend | 6.00% | 8.00 | 3.50% | 6.00 |
| 2.1.1.2 Bursaries for black Students at Higher Education institutions | 2.50% | 4.00 | ||
| 2.1.1.3 Score for Disabled Skills Spend | 0.30% | 4.00 | 0.30% | 4.00 |
| 2.1.1.4 Learners – Black | 2.50% | 4.00 | 2.50% | 3.00 |
| 2.1.1.5 Black Unemployed people participating in training | 2.50% | 4.00 | 2.50% | 3.00 |
| 2.1.1.6 Bonus Point – Absorption of Learners and black people with bursaries | 100.00% | 5.00 | 100% | 5.00 |
| 2.1.1.7 Score for Skills Spend | 6.00% | 8.00 | 3.50% | 6.00 |
| Total | 2 + 5 bonus | 2 + 5 bonus |
The major changes are discussed below:
1. The Amendment details the calculation of scores for Skills development (2.1.1.1), for learnerships (2.1.2.1) and for Unemployed People (2.1.2.2) but is silent on the calculation of the bursaries (2.1.1.2) score. We believe it will be done in the same way as the score for Skills Development (2.1.1.1).
2. The same skills development spend cannot be claimed under both 2.1.1.1 and 2.1.1.2.
3. The same people cannot be claimed under both 2.1.2.1 (learnerships) and 2.1.2.2 (Unemployed People trained). This clarifies an interpretation issue under the initial amended codes, where some Verification Agencies were allowing unemployed learners under both 2.1.2.1 and 2.1.2.2, others said that this was a double count and only allowed the black employees to be claimed under one of the lines.
4. The limitation of skills development Categories F and G to 15% of the total value of Skills Development Expenditure is increased from 15% to 25%.
5. Non-core costs such as travel, accommodation, and catering have been expanded to include costs of training managers and Skills Development facilitators. The limitation of 15% remains but is not applied in the case of Skills Development recognised in terms of the new Bursaries line (2.1.1.2).
6. Stipends linked to a bursary programme can be claimed in full.
7. Bursaries are defined as payments made to or on behalf of students registers with institutions established by or registered with the Department of Basic Education and the Department of Higher Education & Training. It includes primary, secondary and tertiary education. This contradicts the definition used for 2.1.1.2 above which deals with bursaries for higher education purposes.
Comments on these amendments must be received by the dti by 28 May 2018. While the dti reserves the right to make no changes to the existing document, it is important that businesses actively engage and submit comment and input.
If you have any B-BBEE consulting needs, please contact either Charlene Skipp on [email protected] (083 780 7209) or me on [email protected] (083 440 2130). Charlene and I can redirect queries on Employment Equity consulting.
