An essential key to survival in current times is addressing the challenges the new BEE codes present to business. The new BEE codes will make it much harder for companies, that have not adapted, to win new business. Without proper planning, you will be placing your business at risk. It will be very difficult (unless you are at least 51% Black Owned) to obtain a high rating level due to the thresholds that were significantly increased. One of the best and easiest way to boost your rating is through skills development. In essence, the new codes demand a far greater investment in skills development with a particular emphasis on accredited training and learnerships.
We have seen a shift in the market. Instead of looking at learnerships as a compliance exercise, companies are now asking the question: “how can we make sure our training spend earns us the most possible BEE points while at the same time making us more competitive?”
This means that employers, implement these programmes cost effectively by taking advantage of all the available incentives such as Section 12H Tax rebates and Youth subsidies from SARS and Discretionary grants from SETA’s. We all see the obstacles that companies will now face when tendering for a specific project or when applying for funding from the IDC or DTI.
While LFP is not a recognized business consultant we pride ourselves in our specific alignment of Skills Development initiatives that has a direct impact on our clients’ scorecard and ensures a minimum spend while doing so.
In the future, buyers will be cautious in only choosing suppliers whose BEE rating will help them strengthen their own procurement score. If your company depends on sales from government or corporates it will have little choice but to work on its BEE score. There are no short cuts. It will take you at least a year to complete the necessary steps, so don’t wait until the last minute to address this issue. Remember that the alternative of not improving your score could be costly.
The new codes introduce significant changes, according to Hanli Malan who facilitated “The Revised BEE Scorecard with a Special Focus on Skills Development” at the last Community of Experts workshop.
Previously companies with a turnover of less than R 35 million were allowed to choose their priority elements. Subsequently with the new code structure priority elements are predetermined for implementation.
Key elements of the new BEE codes
In the new codes, only the Socio-Economic Development element has stayed the same with 5 points. All other elements have become more intricate.
- Management Control now contributes 15 points instead of 10 points.
- Ownership has gained in importance; it counts for 25 instead of 20 points. Unlike in the past, even small businesses will be assessed in terms of ownership.
- Preferential Procurement and Supplier Development have merged. They now account for 40 points together instead of the previous 35. In other words, it will have a major influence on which supplier’s companies will decide to work with.
- As for Skills Development, an extra 5 bonus points are available, earning 20 points instead of 15 points.
Of the five elements, ownership, preferential procurement and skills development are considered priority elements. That means that if you do not score at least 40% of the minimum target on these priority elements, you will be marked down by one level on your overall score. For example, you will have to score at least 8 out of the 20 points available for skills development or you will be penalised.
Skills development is one of the easier elements to gain points on. Succeeding here will not only help with your score but will also give your business the skills it requires while lowering unemployment and therefor contributing to the economy of South Africa.
- You can earn 8 points if you invest 6% of your payroll on the training of black people. This percentage used to be only 3%.
- Another 4 points can be received if you spend 0.3% of your total payroll on learning programmes for disabled, black employees.
- By participating in learnerships, apprenticeships and internships you can claim 4 points if 2.5% of your staff is enrolled on such programmes and another 4 points if 2.5% of your company’s headcount are black unemployed learners.
- You earn an additional 5 bonus points if all your unemployed learners will be gainfully employed at the end of the learnership.
The following table summarises the priority elements:
New benefits under the latest codes
Apart from the changes in the way points are allocated under the new codes, you should also be aware that:
- You can now claim training costs of people that are not employed by your company.
- Learnerships, apprenticeships and internships are a great way to boost your training spend, as you can count the salaries of the learners as a training expenditure.
- Learnerships for disabled individuals allow you to score in all the three areas at the same time.
- Skills development spending can be counted in two elements at the same time, i.e. it can be both part of supplier and enterprise development.
- The cost for your Skills Development Facilitator can be claimed as a training expense.
- Only 15% of your training spend can consist of internal training that is not accredited. In other words, most of your training will have to be unit standard aligned.
- Only 15% of your training claim can be for expenses such as travelling, catering or venue hire.
- SETA grants, such as the mandatory pivotal and discretionary grants, can help you to fund your training programs.
- SARS offers a tax break of R 60 000 per participant on learnership, which equals a saving of R 16 800 per learner per year and R 120 000 for a learner with a disability which equals a saving of R 33 600.
- SARS also allows you to deduct R 1 000 per young person per month that you employ, which equals an annual saving of R 12 000. Terms and conditions apply.
- You can also benefit from substantial salary savings as previously unemployed learners only need to be paid an allowance instead of the standard industry related salary. Depending on the position under consideration, you can save up to R 2 000 per month per person on a learnership.
- All of the above roughly amounts to a saving of approximately R 50 000 per participant on a learnership.
As you can see from the above points, that there are plenty of incentives available for you to boost your skills development score even if your training budget is limited.
Choosing an experienced partner in implementing a skills development solution is essential to making these programs a success. We are in the business of making BEE compliance happen. Let us be your BEE-aligned skills development partner.