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Employment Tax Incentive

Sunel LouwThe Employment Tax Incentive (ETI), which came into effect on 1 January 2014, is aimed at encouraging employers to hire young and less experienced work seekers.

The incentive is scheduled to end on 31 December 2016. However, its effectiveness will be reviewed to determine whether it should be continued.

Who qualifies?
The employer is eligible to receive the ETI if the employer:

  • is registered for employees’ tax (PAYE);
  • is not in the national, provincial or local sphere of government;
  • is not a public entity listed in Schedule 2 or 3 of the Public Finance Management Act (other than those public entities designated by the Minister of Finance by notice in the Government Gazette);
  • is not a municipal entity;
  • is not disqualified by the Minister of Finance due to displacement of an employee or by not meeting such conditions as may be prescribed by the Minister by regulation.

An individual is a qualifying employee if he or she:

  • has a valid South African ID;
  • is 18 to 29 years old. The age limit is not applicable if the employee renders services inside a special economic zone (SEZ) to an employer that is operating inside the SEZ, or if the employee is employed by an employer that operates in an industry designated by the Minister of Finance;
  • is not a domestic worker;
  • is not a “connected person” to the employer;
  • has been employed by the employer or an associated person to the employer on or after 1 October 2013; and
  • is not an employee in respect of whom an employer is disqualified to receive the ETI (i.e. the employee is paid below the minimum wage applicable to that employer or paid a wage below R2 000 per month if a minimum wage is not applicable).

Seasonal workers will be eligible as long as they meet the requirements of a qualifying employee

How does it work?
An employer will calculate and claim the incentive on a monthly basis when completing and submitting the EMP201.

The employer must take the following steps:

  1. Keep accurate documentation, including the following: copies of the employee’s ID book/card, a signed employment contract and an accurate record of employees’ ages;
  2. Identify all qualifying employees for each monthly claim;
  3. Determine the applicable employment period for each qualifying employee;
  4. Determine each employee’s monthly remuneration;
  5. Calculate the amount of the incentive per qualifying employee as per the table below;
  6. Complete and submit the EMP201 form, which has been amended to include a field for claiming the ETI.

Monthly remuneration

Monthly Employment Tax Incentive during the first 12 months of employment of the qualifying employee

Monthly Employment Tax Incentive during the next 12 months of employment of the qualifying employee

R 0 – R2 000

50% of monthly remuneration

25% of monthly remuneration

R 2 001 – R4 000

R1 000

R500

R 4 001 – R6 000

Formula:

R1 000 – (0.5 x (monthly remuneration – R4 000))

Formula:

R500 – (0.25 x (monthly remuneration – R4 000))

>R6 000

No incentive

No incentive

Article written by Sunel Louw of Tenk Loubser & Associates (021 915 6666)