TAX BITES – Employment Tax Incentive

TAX BITES – Employment Tax Incentive

TAX BITES – Employment Tax Incentive?

Introduced in 2014, the Employment Tax Incentive (ETI) encourages the employment of young and less experienced work seekers. With millions of young South Africans excluded from participating in the economy, they are more likely to suffer the consequences of unemployment. Therefore, these young people do not gain the skills or experience to drive and contribute to the economy.

The ETI, therefore, incentivises the increased employment of young work seekers by prospective employers who would otherwise be reluctant to hire less skilled and experienced youth.

How it benefits employers

Beyond allowing employers to boost the employment of young work seekers, the ETI reduces employers’ cost of hiring young people by allowing them to reduce the amount of their Pay-As-You-Earn (PAYE) bill for qualifying South African employees aged 18-29 who earn less than R6 500 per month. 

Who qualifies?

An employer is eligible to claim the ETI if the employer:

  • Is registered for Employees’ Tax (PAYE), or must be eligible to register for 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 Gazette)
  • Is not a municipal entity
  • Is not disqualified by the Minister of Finance due to the displacement of an employee or by not meeting the conditions as may be prescribed by the Minister by regulation.

Who is a qualifying employee?

An individual is a qualifying employee if he or she:

  • Has a valid South African ID, Asylum Seeker permit or an ID issued in terms of the Refugee Act
  • Is 18 to 29 years old 
  • Is not a domestic worker
  • Is not a “connected person” to the employer
  • Was employed by the employer or an associated person to the employer on or after 1 October 2013 and
  • Is paid the minimum wage applicable to that employer, or if a minimum wage doesn’t apply, is paid the amount contemplated in the Minimum Wage Act and not more than R6 500 remuneration. If there is no prescribed wage regulating measure or if not subject to or exempt from the National Minimum Wage Act requirements, a wage of at least R2 000 (where the qualifying employee was employed for 160 hours in a month) must be paid.

The incentive amount differs based on the salary paid to each qualifying employee and whether the qualifying employee was employed after the inception of the ETI programme on 1 October 2013. ETI may only be claimed for a total of 24 qualifying months.

The art of accounting.

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