The Employment Tax Incentive (ETI) is an incentive aimed at encouraging employers to hire young and less experienced work seekers. It reduces an employer’s cost of hiring young people through a cost-sharing mechanism with government, while leaving the wage the employee receives unaffected. The employer can claim the ETI and reduce the amount of Pay-As-You-Earn (PAYE) tax payable by the amount of the total ETI calculated in respect of all qualifying employees. This incentive came into effect on 1 January 2014.
Why the Employment Tax Incentive?
Many young South Africans are excluded from economic activity, and as a result suffer disproportionately from unemployment, discouragement and economic marginalisation. High youth unemployment means young people are not gaining the skills or experience needed to drive the economy forward. This lack of skills and experience can easily become an impediment to employment, thereby having long-term adverse effects on the individual and the economy.
In response to the high youth unemployment rate, government has implemented an incentive aimed at encouraging employers to hire young and less experienced work seekers, as stated in the National Development Plan.
Who qualifies for ETI?
- Employers who are registered for Employees’ Tax (PAYE) with SARS.
- Only tax compliant employers can claim the ETI. However, the amount will be available, subject to limitations, once non-compliant employers become compliant.
Who doesn’t qualify for ETI?
- National, provincial and local spheres of government.
- Public entities listed in Schedule 2 or 3 of the Public Finance Management Act.
- Parastatals, government entities or municipal entities, unless the Minister of Finance designates them by regulation.
- Employers who have been disqualified by the Minister of Finance due to displacement of employees or by not meeting conditions as may be prescribed by the Minister by regulation.
Employers are able to claim the incentive when they have employees who:
- Have a valid South African ID
- Fall in the age group between 18 and 29 years old
- Are not domestic workers
- Are not related or “connected” to the employer
- Earn at least a minimum wage in terms of wage regulating measures. If no measure exists then the employee must earn R2 000 permonth in wages
- Earn less than R6 000 per month in total remuneration (basic salary plus all other benefits)
- Were newly employed on or after 1 October 2013
Note: It can be claimed for a maximum of 24 monthly periods per qualifying employee.
How is the ETI claimed?
An employer can claim the incentive by decreasing the amount of PAYE that is payable to the SARS for every qualifying employee that is hired by the employer. This is done by completing the Employment Tax Incentive (ETI) field on the employer’s monthly EMP201 submission to SARS.
In determining the value of the incentive for a particular month, an employer must:
- Identify all qualifying employees for that month
- Determine the applicable employment period for each qualifying employee (1st 12 months or 2nd 12 months)
- Determine each employee’s “monthly remuneration”
- Calculate the amount of the incentive per qualifying employee
- Aggregate the result
How long will the incentive be available?
The incentive will be available until 31 December 2016 with continuous review of its effectiveness.
Penalties will be levied when:
- An employer claims an employment tax incentive in respect of an eligible employee earning less than the minimum wage (or less than R2 000 where a minimum wage is not applicable). The employer will be liable for a penalty equal to 100% of the employment tax incentive received and will have under-payment of employees’ tax and possible interest in penalties in terms of the Tax Administration Act
- An employer is deemed to have displaced an employee in order to employ an eligible individual. In this instance the employer will be liable for a penalty of R30 000 in respect of that employee.
For more information, call the SARS Contact Centre on 0800 00 7277 or visit your nearest SARS branch.