The Employment Tax Incentive (ETI) Act was introduced by Government on 01st January 2014 to significantly encourage youth employment.
Where you are looking at employing a person who is under the age of 29 years and who earns less that R6,500.00 per month, this is a scheme that will directly apply to your business and pay part of that new employee’s salary.
How will you be paid for employing such a young worker? Well, the system is relatively simple and immediate; you merely deduct part of the employee’s salary from the PAYE tax that you pay over to SARS every month.
How much are you able to claim? For employees earning between R2,001 – R4,500 per month, you are able to claim R1,000 off your PAYE, while for employees earning between R4,501 – R6,500 you are required to apply the formula of X = A – (Bx(C-D)) where A = R1000, B = 0,5, C = Monthly remuneration and D = R4,500. Accordinly, for employees earning more than R4,500 per month, you will get a lower tax incentive. You should also keep in mind that during months 13 – 24 of a qualifying employee’s employment, the permissable ETI claim is halved.
Companies choose whether to claim or not ETI benefits and therefore, if you do not claim it, despite being entitled to it, you are effectively losing this money every month.
Who qualifies for ETI?
The employer may only claim ETI for qualifying employees who were recruited on or after 01st October 2013. An individual is a qualifying employee if he or she meets the following conditions:
- Has a Valid South African ID (also ID issued for a valid asylum seeker or refugee).
- Is between 18 to 29 years old (the incentive ends, at the latest, the month the employee turns 30).
- Is paid the minimum wage applicable of at least R2,000 but not more than R6,500.
- Is not a domestic worker.
- Is not connected or related in any way to the employer.
- Is not an independent contractor.
- Was not employed by the employer or an associated person on or before 01st October 2013.
- Where the employee is employed and paid for at least 160 hours in a month, the amount of R2000, or
- Where the employee is paid for less than 160 hours, the R2000 must be apportioned pro rata.
- Receives remuneration of not more than R6,500 in a month.
- If the employee is employed in a Special Economic Zone, there is no age restriction.
- The incentive may only be claimed for 2 years in respect of each qualifying employee.
Employers are responsible for capturing employee information correctly – ID numbers, birthdates, age, employment date.
How exactly does ETI work?
In a nutshell, the ETI calculated is used to reduce an employer’s PAYE liability for a given month. If the PAYE amount is lower than the ETI, the employer’s PAYE liability will be non-existent (the remaining ETI is carried forward to the following period). If the PAYE exceeds the ETI, the full ETI amount may be used to reduce the PAYE liability (no ETI is carried forward).
The employee’s wage in their employment contract is used to determine whether or not they qualify for ETI. The actual remuneration paid to the employee is used to calculate the amount of ETI that the employer may claim. It is important to keep up to date with the latest Regulations issued by SARS with respect to ETI as the threshold earnings on which ETI may be claimed are regularly revised. As recently as March 2019, the upper threshold was increased from R6,000/month to R6,500 per month.
Employers may find the Employment Incentive Tax Act difficult to implement and administer correctly. Should you be in doubt, rather give us a call. Trust the experts, use The Labour Counsel.
The Labour Counsel offers a wide range of services, including the issuing of proper employment handbooks and conducting fair disciplinary hearings. By ensuring that you have the correct offer of employment and Disciplinary Code, we are able to eliminate the stresses that result from hiring the wrong candidate!