Key Takeaways:
- Qualifying Small Enterprises or QSEs are enterprises with an annual turnover between R10 million and R50 million.
- Qualifying Small Enterprises are scored on five B-BBEE elements: ownership, management control, skills development, enterprise and supplier development, and socio-economic development.
- Qualifying Small Enterprises must meet sub-minimum scores of 40% on two of the three priority elements (ownership, skills development, and enterprise and supplier development).
- Qualifying Small Enterprises with at least 51% or 100% black ownership can use a sworn affidavit to claim a level 2 or 1 rating respectively.
- Qualifying Small Enterprises need to undergo a verification process by a SANAS-approved verification agency to obtain a B-BBEE certificate, valid for one year.
- Complying with B-BBEE can help Qualifying Small Enterprises access new markets, enhance their reputation, gain a competitive edge, and improve their performance.
If you are a business owner in South Africa, you may have heard of the term QSE and wondered what it means and how it relates to B-BBEE. In this article, we will explain what a QSE is, how it is measured for B-BBEE compliance, and what are the benefits and challenges of complying with B-BBEE for Qualifying Small Enterprises. We will also provide some tips and resources to help you achieve B-BBEE compliance for your QSE.
What is a QSE?
QSE stands for Qualifying Small Enterprise, which is a category of enterprises that have an annual turnover of between R10 million and R50 million. QSEs are different from EMEs (Exempted Micro Enterprises), which have an annual turnover of less than R10 million, and Generic Enterprises, which have an annual turnover of more than R50 million.
Qualifying Small Enterprises are subject to the Broad-Based Black Economic Empowerment (B-BBEE) framework, which is a government initiative to promote economic transformation and empowerment of black people in South Africa. B-BBEE aims to address the legacy of apartheid and racial discrimination by increasing the participation and ownership of black people in the economy.
QSEs need to complete a B-BBEE scorecard and comply with all five elements of B-BBEE, unless they have more than 51% or 100% black ownership, in which case they can use a sworn affidavit to claim a level 2 or 1 rating respectively. A B-BBEE scorecard is a tool that evaluates the performance of an enterprise on various criteria related to B-BBEE. A B-BBEE rating is a level that indicates the degree of B-BBEE compliance of an enterprise, ranging from level 1 (the highest) to level 8 (the lowest).
Being a QSE has some advantages and disadvantages. On the one hand, QSEs have more flexibility and less complexity than Generic Enterprises when it comes to B-BBEE compliance. Qualifying Small Enterprises can choose any two of the five B-BBEE elements to comply with, while Generic Enterprises have to comply with all five. Qualifying Small Enterprises also have lower targets and weighting points than Generic Enterprises for each element. On the other hand, QSEs have more obligations and costs than EMEs when it comes to B-BBEE compliance. QSEs have to complete a B-BBEE scorecard and undergo a verification process, while EMEs do not. QSEs also have lower recognition levels than EMEs for B-BBEE procurement purposes.
How are QSEs measured for B-BBEE compliance?
QSEs are measured for B-BBEE compliance based on the Qualifying Small Enterprise Scorecard, which is a modified version of the Generic Scorecard. The Qualifying Small Enterprise Scorecard evaluates the performance of QSEs on five B-BBEE elements: ownership, management control, skills development, enterprise and supplier development, and socio-economic development. Each element has a set of indicators, targets, and weighting points that determine the score of a QSE on that element. The total score of a QSE on the scorecard determines its B-BBEE rating.
The table below summarizes the five B-BBEE elements, their indicators, targets, and weighting points for QSEs.
| Element | Indicator | Target | Weighting Point |
|---|---|---|---|
| Ownership | Black ownership of voting rights | 51% | 10 |
| Black ownership of economic interest | 51% | 10 | |
| Net value of black ownership | 40% | 5 | |
| Management Control | Black representation in top management | 60% | 4 |
| Black representation in senior management | 60% | 3 | |
| Black representation in middle management | 75% | 4 | |
| Black representation in junior management | 88% | 4 | |
| Skills Development | Skills development expenditure on learning programs for black people | 6% of leviable amount | 8 |
| Skills development expenditure on learning programs for black women | 4% of leviable amount | 6 | |
| Skills development expenditure on learning programs for disabled black people | 0.3% of leviable amount | 4 | |
| Number of black learners absorbed into permanent employment | 100% of target | 5 | |
| Enterprise and Supplier Development | Total measured procurement spend | 80% of total procurement spend | 5 |
| Procurement from black-owned suppliers | 15% of total procurement spend | 9 | |
| Procurement from black women-owned suppliers | 10% of total procurement spend | 6 | |
| Procurement from black-owned suppliers that are QSEs or EMEs | 15% of total procurement spend | 4 | |
| Procurement from black-owned suppliers that are designated groups or new entrants | 10% of total procurement spend | 4 | |
| Enterprise development contributions | 2% of net profit after tax | 3 | |
| Supplier development contributions | 2% of net profit after tax | 2 | |
| Socio-Economic Development | Socio-economic development contributions | 1% of net profit after tax | 5 |
The maximum score that a QSE can achieve on the scorecard is 125 points. The table below shows the B-BBEE rating levels and the corresponding score ranges for QSEs.
| B-BBEE Rating Level | Score Range |
|---|---|
| Level 1 | 100 points or more |
| Level 2 | 95 – 99 points |
| Level 3 | 90 – 94 points |
| Level 4 | 80 – 89 points |
| Level 5 | 75 – 79 points |
| Level 6 | 70 – 74 points |
| Level 7 | 55 – 69 points |
| Level 8 | 40 – 54 points |
| Non-Compliant | Less than 40 points |
QSEs must meet sub-minimum scores of 40% on two of the three priority elements: ownership, skills development, and enterprise and supplier development. If a QSE fails to meet the sub-minimum scores, its B-BBEE rating level will be discounted by one level.
QSEs with at least 51% or 100% black ownership can use a sworn affidavit to claim a level 2 or 1 rating respectively, without completing a B-BBEE scorecard. However, they still need to comply with the sub-minimum scores on the priority elements, or else their rating level will be discounted by one level.
What are the benefits and challenges of complying with B-BBEE for QSEs?
Complying with B-BBEE for QSEs can have several benefits, such as:
- Accessing new markets and opportunities, especially in the public sector and with large corporates that prefer to do business with B-BBEE compliant entities. Qualifying Small Enterprises with higher B-BBEE levels can enjoy more preferential treatment and access to tenders, contracts, and licenses.
- Enhancing the reputation and credibility of the QSE as a socially responsible and transformational business. QSEs that comply with B-BBEE can demonstrate their commitment to the economic empowerment of black people and the development of the country.
- Gaining a competitive edge and differentiation in the market, especially if the QSE achieves a high B-BBEE level. Qualifying Small Enterprises that comply with B-BBEE can stand out from their competitors and attract more customers, investors, and partners.
- Improving the performance and productivity of the Qualifying Small Enterprise by attracting and retaining more diverse and skilled talent, developing and supporting more innovative and sustainable suppliers and enterprises, and contributing to more inclusive and impactful social causes.
Complying with B-BBEE for QSEs can also have some challenges, such as:
- Facing more complexity and costs than EMEs when it comes to B-BBEE compliance. QSEs have to complete a B-BBEE scorecard and undergo a verification process, which can be time-consuming, expensive, and cumbersome. Qualifying Small Enterprises also have to keep track of and report on various indicators and targets for each B-BBEE element, which can be challenging and tedious.
- Facing more competition and pressure than Generic Enterprises when it comes to B-BBEE compliance. QSEs have to compete with other QSEs and EMEs for the same market share and opportunities, while also meeting the expectations and requirements of Generic Enterprises that are their customers or suppliers. Qualifying Small Enterprises also have to balance the trade-offs and risks of increasing or decreasing their turnover, which can affect their B-BBEE status and rating.
- Facing more complexity and costs than EMEs when it comes to B-BBEE compliance. QSEs have to complete a B-BBEE scorecard and undergo a verification process, which can be time-consuming, expensive, and cumbersome. Qualifying Small Enterprises also have to keep track of and report on various indicators and targets for each B-BBEE element, which can be challenging and tedious.
- Facing more competition and pressure than Generic Enterprises when it comes to B-BBEE compliance. QSEs have to compete with other QSEs and EMEs for the same market share and opportunities, while also meeting the expectations and requirements of Generic Enterprises that are their customers or suppliers. QSEs also have to balance the trade-offs and risks of increasing or decreasing their turnover, which can affect their B-BBEE status and rating.
How to achieve B-BBEE compliance for your QSE?
Achieving B-BBEE compliance for your QSE can be a daunting task, but it is not impossible. Here are some tips and resources to help you along the way:
- Understand the B-BBEE framework and the Qualifying Small Enterprise Scorecard. You can find the official documents and guidelines on the Department of Trade and Industry website or the B-BBEE Commission website. You can also watch some informative videos on YouTube that explain the basics of B-BBEE .
- Assess your current B-BBEE status and identify your gaps and strengths. You can use online tools and calculators to estimate your B-BBEE score and rating, such as the BEE Scorecard Calculator or the BEE Scorecard Generator. You can also consult with B-BBEE experts and advisors to get a more accurate and comprehensive assessment of your B-BBEE performance and potential.
- Develop and implement a B-BBEE strategy and action plan. You can use the B-BBEE elements as a framework to guide your B-BBEE initiatives and goals. For example, you can consider the following actions for each element:
- Ownership: Increase your black ownership by selling shares to black investors, employees, or partners; or by creating a black-owned trust or company that holds shares in your Qualifying Small Enterprise.
- Management Control: Increase your black representation in your management structure by recruiting, promoting, or appointing more black managers and board members; or by creating a black management forum or committee that has decision-making authority in your Qualifying Small Enterprise.
- Skills Development: Increase your skills development expenditure on learning programs for black people by enrolling your black employees and learners in accredited courses, workshops, or seminars; or by partnering with training providers or institutions that offer relevant and quality learning programs.
- Enterprise and Supplier Development: Increase your procurement from and support to black-owned suppliers and enterprises by sourcing your goods and services from B-BBEE compliant entities; or by providing financial or non-financial assistance to black-owned entities that are QSEs or EMEs.
- Socio-Economic Development: Increase your socio-economic development contributions by donating or sponsoring to causes or organizations that benefit black communities; or by participating or volunteering in social or environmental projects or programs that have a positive impact on black people.
- Monitor and evaluate your B-BBEE progress and results. You can use online tools and dashboards to track and measure your B-BBEE indicators and targets, such as Intersect Connect. You can also review and update your B-BBEE strategy and action plan regularly to ensure that they are aligned with your business objectives and the B-BBEE framework.
- Prepare and undergo a B-BBEE verification process. You can find a list of SANAS-approved verification agencies on the SANAS website. You can also prepare a verification file that contains all the relevant documents and evidence that support your B-BBEE claims, such as share certificates, financial statements, employment records, invoices, receipts, contracts, certificates, etc. You can also seek professional guidance and assistance from B-BBEE consultants and verification agencies to ensure that your verification process is smooth and successful.
FAQs
Here are some frequently asked questions and answers about QSEs and B-BBEE compliance:
How long is a B-BBEE certificate valid for?
A B-BBEE certificate is valid for one year from the date of issue. You need to renew your B-BBEE certificate every year by undergoing a verification process.
How does a QSE affidavit differ from a B-BBEE certificate?
A sworn affidavit is a legal document that declares your B-BBEE status and rating based on your black ownership percentage. You can use a sworn affidavit if you have more than 51% or 100% black ownership and you want to claim a level 2 or 1 rating respectively. A B-BBEE certificate is a document that confirms your B-BBEE status and rating based on your B-BBEE scorecard. You need a B-BBEE certificate if you have less than 51% black ownership or you want to claim a higher rating than your black ownership percentage.
What are the penalties for non-compliance or fronting practices?
Non-compliance or fronting practices are serious offences that can result in fines, imprisonment, cancellation of contracts, exclusion from tenders, or loss of licenses. Non-compliance refers to failing to meet the minimum requirements or standards for B-BBEE. Fronting practices refer to misrepresenting or falsifying your B-BBEE status or rating. You can report any suspected cases of non-compliance or fronting practices to the B-BBEE Commission, which is the regulatory body that oversees and enforces B-BBEE in South Africa.
Conclusion
We hope that this article has helped you understand what a QSE is, how it is measured for B-BBEE compliance, and what are the benefits and challenges of complying with B-BBEE for QSEs. We also hope that you have found some useful tips and resources to help you achieve B-BBEE compliance for your QSE.
Remember that complying with B-BBEE is not only a legal obligation, but also a strategic opportunity for your QSE to grow and contribute to the economic empowerment of black people and the development of South Africa.
