BBBEE Amendments | out for comment by 29 May 2018

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Dr Ivor Blumenthal | CEO | ArkKonsult | mail me |


If you consider that there have been many grey and confusing areas in-relation to BBBEE since the publication of the first Scorecard in 2003, and then compounding the ambiguity with the publication of the second Scorecard in 2013, these latest amendments in 2018, clarify a number of issues and also create a number of opportunities for BBBEE participating companies.

1. YES (Youth Employment Scheme)

Perhaps the most outstanding clarification, and opportunity for participating entities, is in the explanation of what a YES Company is – Youth Employment Scheme.

In understanding the YES Programme, one begins to understand the priority which has always been intended, but never been expressed, to create Entry-Level opportunities for Unskilled and Unemployed people under the age of 30 to enter the workplace.

To-date this has been something which has been assumed but never properly delineated so that in being left to interpret the Codes, companies sometimes have purposefully overlooked the focus on creating opportunities for young people.

If you consider that over 500,000 young people are completing school every year and becoming unemployed unless workplace entering opportunities are being created, added to that another 500,000 school dropouts, then you begin to appreciate the scale of the problem being addressed by these changes now.

This Amendment now makes the purpose and intention towards these unskilled and unemployed young people clear and unambiguous. Companies are being encouraged to embrace these people and are being offered healthy rewards in-return.

Participating in the YES Programme is not compulsory, but is highly rewarding.

A YES Employee is a Fixed-Term Contract Employee – 12 months at the same level and total-cost-to-company as a permanent Employee in the same job (any existing job) at any level (identical Basic Conditions of Employment), with NO EXPECTATION OF GAINFUL EMPLOYMENT at the end of the 12-month period.

There are only two criteria which apply to YES Candidates:

  1. The first is that they have to be between the ages of 18 and 35
  2. The second is that they have to be ‘Black’ as defined by the BBBEE Act 53 of 2003, amended in 2013

It is all about growth in the number of Employee’s from the 2017/18 Headcount, where the highest number resulting from the application of three formulas will be applied to companies with a turnover in-excess of R50 Million a year, and only one table which will apply to companies making less than R50 million turnover a year.

This sounds complicated, but here are two examples showing how simple the calculation actually is:

Example 1 | For a Large Measured Entity which in 2017/18

  • has a Headcount of 100 Employee’s
  • turnover is R140 Million
  • the average NET PROFIT over a three-year period was R10 Million

Application of the three formulas:

  • 1.5% of that 100 Headcount will be 1.5 Additional Yes Employee’s – 2
  • 1.5% of the Net profit is R1.5 Million, divided by R55,000 is – 27
  • Table on Turnover for Large Entities is – 8

The highest result is 2. Therefore, the number which will apply for this company will be determined by Net Profit. It is 27 additional YES Employee’s at ANY current level of employment and against ANY Job Description, for a 12-month period.

Example 2 | For an Exempt or Qualifying entity, it is much simpler.

If in 2017/18 the company had a Headcount of 50 people:

‘Table 2 Headcount Target’ indicates a YES YOUTH TARGET of – 3

Therefore, the Exempt, or Qualifying companies target is 3 additional YES Employees.

The YES Carrot

What comes next is the really juicy opportunity.

There are two Primary Incentives to a company being classified as a ‘YES COMPANY’.

First incentive

Allows companies to improve their BBBEE Levels where the company:

  • Meet its target and absorb (which means ‘Employ on a Permanent Basis’) 2.5% of its target, it will improve its BBBEE Recognition Level by 1 Level– e.g. if it has been verified as a Level 4 it will automatically be entitled to improve its rating to a Level 3 because of its having met these criteria.
  • If it achieves 1.5% of that target and Absorbs 5%, it will qualify to move 1 Level, and get an extra 3 Bonus Points on its overall Scorecard
  • If it Doubles its YES Target and absorbs 5% it will move 2 Levels.

 Using the two previous examples this is how it applies:



Second Incentive

Applies to a company being classified as a ‘YES COMPANY’ is Skills Offsets:

These companies will be able to claim up to 50% of their Skills Development Spend, as INFORMAL TRAINING (Category F & G) whereas non-YES companies can only claim 25% from these categories of expenditure.

This is HUGE given that this incentive DOUBLES the opportunity to set costs off against this target for Information Sharing, Direct On-The-Job Instruction involving Workshops, Seminars, Conferences, Short Courses or On-The-Job, work context training, not required to be accredited by SAQA or the QCTO.

An Alleviator is that

Where companies can’t create the number of YES opportunities necessary to qualify in meeting targets, they are allowed to SPONSOR NEW JOBS in other EME’s or QSE’s which will count towards their own targets. These can be with Clients or Suppliers.


2. The Evolution of the Skills Development Element

This Amendment is directed towards qualifying and clarifying many issues to-do with the Skills Development Element of BBBEE.

Reconstructing the percentage target for skills spending

Whereas in the 2013 Scorecard, 6% of Payroll had to be spent on Skills, in this amendment that 6% is split between two, and potentially 3 sub-elements:

Disability Spend – 2.1.1.3.

Dealing with one of the few unclear inclusions in this amendment, it is unclear whether the 0.3% spend on Black Disabled employees is included in the target on Black People, or is an additional target?

As there is no clarity on this particular target, we have to assume that it is in-addition to 2.1.1.1. and therefore that the new overall level of spending on Skills is 6.3% band that the target has therefore been increased by 0.3%.

Skills Development Expenditure – 2.1.1.1.

This is the old 6% of Payroll which has now been reduced to 3.5% of Payroll.

It remains unclear whether this 6% incorporates the 1% existing Skills Levy or not. This confusion prevails from the 2013 Scorecard where it was simply assumed to incorporate the 1% Skills Levy. Some Charters such as the Construction Charter in-particular specifically makes reference to the fact that the 1% Skills Levy is incorporated into the target. This amendment continues to not make reference at all to the prevailing Skills Levy.

To ensure that companies are not disadvantaged by this change when it comes to expenditure on in-company and unregulated training interventions, the percentage allowance for this kind of training, categorised in Annexure 300 as F & G type training, has been increased from the original 15% of the 6% to 25% of the now 3.5%. There is, in-practice very little difference.

Introduction of the Higher Education Spending Target – 2.1.1.2.

In-response to the pressure from the Fees-Must-Fall demonstrations on Government, and also the perceived unwillingness of Businesses to provide Bursary Sponsorship to Institutions of Higher Education and Training, the DTI has now specifically taken the discretion away from Business to spend on HET and instead has introduced an enforced 2.5% of Payroll Target on these products and services.

The positioning of Industry Bodies at the forefront of this target

What this does is send a clear signal to companies and Employer Associations to gear-up to ensure the proper management of Higher Education sponsorship in the best interests of their respective Industries and the Sector in-general. To align this spending with opportunities, gaps and vacancies and to manage this process as shared services rather than on a company-to-company basis.

Institutional agreements with Higher Education Institutions which are classified and recognised as Centres of Excellence by the Industries and Sector affected, are critical in the management of this target.

A specific reference is made in 2.1.3. to implementing a “Training Tracking Tool” to allow companies to track the number of Black People absorbed by the measured and Industry entity at the end of Internship, Learnership and Apprenticeship Programmes. This can only be done on an economy-of-scale basis by an Industry Body rather than by an individual company itself. Where there is a Professional Body this would obviously be the entity of choice to manage this objective.

The Weighting Points have been spread around to accommodate the extra 4 Points required for the hew HET Target. Skills Expenditure weighting has decreased from 8 to 6, as have the weightings on the percentage of Total (18(1) Employee’s participating in Learnerships, Apprenticeships and Internships and unemployed 18(2) Black people participating in Learnerships, Apprenticeships and Internships, from 4 to 3 points each.

Distinguishing spend on Basic Education and Training from Higher Education and Training

It is important to note that whereas this new target, 2.1.1.2. makes allowance for expenditure of 2.5% of Payroll on Bursaries with Higher Education and Training Institutions, expenditure on all Basic Education and Training Institutions is incorporated into the first 3.5% of Payroll Target 2.1.1.1.

Making provision for an SDF or Training Manager

This Amendment makes specific provision for the employment or contracting of a Skills Development Facilitator or a Training Manager. Companies can spend up to 15% of the 3.5% target stipulated in 2.1.1.1. on this expenditure.

Introducing a Stipend for Higher Education Students

This amendment introduces the concept that a STIPEND paid to a Bursary Recipient, under 2.1.1.2. will constitute Skills Development Expenditure under 2.1.1.2. It is however silent on the amount of such a Stipend and appears to leave it to the company’s discretion. In 5.6. the amendment goes further to provide examples of legitimate training costs for bursaries or scholarships which include fees, textbooks and other learning materials and subsistence or accommodation costs during the period of study.

Professional Designations – A Glaring Omission on what can be claimed as Skills Spend

Whereas Professional Designations are registered with SAQA, and referenced to the NLRD, NO REFERENCE is made to Employers being able to claim legitimate Professional Body expenditure, for the attainment of Professional Designations by employee’s or in pre-qualifying labour pools for future employment purposes.

Whereas Annexure 300 makes allowance for 7 categories of Training, the only reference to Professional Bodies is in-reference to the particular type of Learnership which ‘recognises structured experiential learning in the workplace that is required after the achievement of a qualification, formally assessed by a Professional Body’.  This in no way goes far enough to incorporate a Professional Designation which is the core vehicles managed by Professional Bodies, designed to distinguish Qualifications from Professional Recognition.

Many Employers choose to prioritise a Designation over a Qualification because the former incorporates Industry/Sectoral criteria for qualifying to be recognised as a Professional over-and-above any earned qualification, whereas provider-based qualifications do not have the credibility which automatically satisfies the competence and behavioural needs of Employers.

Additional Observations

The Scorecard – 9.1. Is a table which sets out the Weighting Considerations for all 5 Elements against which a Measured Entity is Verified.

In this table, a clear distinction is drawn between the Ordinary Points on-offer, and the Bonus Points. A total of 109 Ordinary Points are available, with an additional 9 Bonus Points totalling 118.

It is important to read and understand that ALL of the Minimum Targets which relate to Ownership, Skills Development and Enterprise, Supplier Development and Procurement relate to the Ordinary Point Targets and not the Bonus Points.

Joint Ventures and Start-up Enterprise – 7. Take note of the introduction of these further two opportunities.

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Perhaps the most important to note is that for one year, a Start-up will be regarded as an Exempt Micro Enterprise, irrespective of Turnover, depending on the size of Tenders it applies for.


 

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