B-BBEE – Top 5 biggest mistakes – EconoBEE Newsletter – 02 November 2011
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B-BBEE – Top 5 biggest mistakes
Top five BEE interpretation mistakes: Ownership
Black ownership percentage targets for Voting Rights The target for each of the above indicators is 25% plus 1 vote. Companies usually misinterpret this target and allocate 26% ownership to black people.
In certain cases, companies may wrongly assume that since they have more than 25% black ownership, they score full points on the ownership scorecard. To realize full points, companies will have to comply with all indicators of the ownership scorecard.
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Top five BEE interpretation mistakes: Management
In a case where companies have both Senior Management and Senior Top Management, they may erroneously consider Senior Management as part of their Senior Top Management team. The Broad-Based BEE scorecard makes a clear distinction between Senior Top Management (Management element) and Senior Management (considered under Employment Equity).
Another common mistake made by companies involves the omission of Executive Directors as Senior Top Managers in calculating the score for Senior Top Management. The target for Senior Top Management collectively includes Executive Directors and Top Managers.
Top five BEE interpretation mistakes: Employment Equity
The targets for black Junior, Middle and Senior management job categories are 68%, 63% and 43% respectively. If a company fails to meet the 40% sub-minimum target for each Employment Equity management level, no points will be scored. Companies often wrongly calculate their Employment Equity score by ignoring the 40% sub-minimum target on the Employment Equity scorecard.
If a company does not distinguish between Middle and Junior Management, the points should be adjusted to the following:
Top five BEE interpretation mistakes: Skills Development
Using net profit after tax instead of payroll when calculating Skills Development expenditure on learning programmes:
One of the indicators for a generic company (a company with a turnover in excess of R35m) says that a company must have spent 3% of payroll training black employees to earn a total of 6 points. And for a QSE (company with turnover between R5m and R35m) to earn their total of 25 points they must have spent 2% of their payroll on learning programmes for black employees. The mistake here is that instead of using total payroll, companies use net profit after tax.
Don’t forget about learnerships. Any course that results in a formal qualification and requires workplace experience will count as a learnership. On the skills development matrix this is category B, C or D. With a target of 5% of total staff for 6 points on the generic scorecard these are easy but very empowering points.
In calculation of BEE procurement, companies should consider their total annual expenses. A common error would be basing the procurement calculation on expenditure incurred only with BEE compliant companies.
For suppliers that are either more than 50% black owned or 30% black female owned, recognition of BEE procurement spend would be based only on their black ownership. They therefore do not need a BEE scorecard to be eligible for these points.
Top five BEE interpretation mistakes: Enterprise Development
The targets for Enterprise Development spend are 3% of Net Profit After Tax (Generic companies) and 2% of Net Profit After Tax (Qualifying Small Enterprises). Companies may misinterpret the targets as a percentage of annual turnover.
Enterprise Development Beneficiaries are classified by the BEE Codes into two categories – Category A and Category B. Spend incurred with Category A beneficiaries is multiplied by a benefit factor of 1.25, whereas spend with Category B beneficiaries is not. A common mistake is that:
companies may forget to multiply the Category A spend by the benefit factor, or
they may multiply spend incurred with Category B beneficiaries by the benefit factor.
Top five BEE interpretation mistakes: Socio-economic Development
The targets for Socio-Economic Development spend are 1% of Net Profit After Tax for both Generic companies and Qualifying Small Enterprises (QSEs). Companies may misinterpret the targets as a percentage of annual turnover.
A common misconception among companies is generalizing all charitable donations as Socio-Economic Development spend. For a company to claim the full value of a charitable contribution as Socio-Economic Development spend, the beneficiaries must be at least 75% black.
Date – BEE Procurement and Enterprise Development Conference: 8th November 2011 – CPT – Belmont Conference Centre 15th November 2011 – DBN – Makaranga Garden Lodge 22nd November 2011 – JHB – Emperors Palace
In addition we have organised a very special half day course for the new government tender regulations. Learn how the new tender process affects your business, gain a competitive advantage and win more tenders.
Date – PPPFA and your Tender: 9th November 2011 – CPT – Belmont Conference Centre 16th November 2011 – DBN – Makaranga Garden Lodge 24th November 2011 – JHB – Emperors Palace
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While there is demand for a B-BBEE Scorecard someone will be taking advantage, shouldn’t that someone be you…
Procurement and Enterprise Development Conference & PPPFA coming into effect
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