EMPLOYMENT TAX INCENTIVE (ETI)

Why is there an ETI?

Millions of young South Africans are excluded from participating in 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 can have long-term adverse effects on the economy.

In South Africa the current lack of skills and experience as well as perceptions regarding the restrictiveness of labour regulations make some prospective employers reluctant to hire the youth.

As a South African employer, you now have a great opportunity to boost the employment of young work seekers.

What is it?

The ETI is an incentive aimed at encouraging employers to hire young work seekers. It was implemented with effect from 1 January 2014.

What are the benefits for employers?

The benefits of the ETI are:

It will reduce the employers cost of hiring young people through a cost-sharing mechanism with government, by allowing you to reduce the amount of Pay-As-You-Earn (PAYE) you pay while leaving the wage received by the employee unaffected.
- For example, employers who are registered for PAYE, and who employ a person for the full month of February 2014 and earns R2000, will get R1 000 off their monthly PAYE liability (provided that the employee is a qualifying employee based on all the other remaining requirements). For more information on how the ETI works, click here.
Employers will be able to claim the incentive for a 24 month period for all employees who qualify. Click here for more information.
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. Click here for more information.
This incentive will complement existing government programmes with similar objectives e.g. learnership agreements.
The aim of the ETI is to facilitate the increased employment of young work seekers.

Who qualifies?

The employer is eligible to claim the ETI if the employer–
- Is registered for Employees’ Tax (PAYE), or must be eligible to register for PAYE (e.g. the employer can’t register just to claim ETI, other registration requirements must be met)
- 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.

Top Tip: To work out if you are a qualifying employer click here.

How do I determine who is a qualifying employee?

Top Tip: There is no limit to the number of qualifying employees that an employer can hire.

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 (please note that the age limit is not applicable if the employee renders services mainly inside a special economic zone (SEZ) to an employer that is operating inside the SEZ. The following SEZs have been designated by the Minister of Finance with effect from 1 August 2018:

Code Description

COE COEGA SEZ

DTP DUBE TRADE PORT SEZ

EAL EAST LONDON SEZ

MAP MALUTI-A-PHOFUNG SEZ

SLB SALDANHA BAY SEZ

RIB RICHARDS BAY SEZ

- Please note that this opened age limit is not activated as yet for any specific industry designated by the Minister of Finance.
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 a wage of at least R2 000 (where the qualifying employee was employed for 160 hours in a month) and not more than
R6 000 renumeration.

Important: The value of the ETI the employer may claim depends on the value of the monthly remuneration paid to the qualifying employee. If the employee has worked less than 160 hours in the month, the remuneration amount must be ‘grossed up’ to 160 hours per month to calculate the value of the ETI. The amount can then be calculated and be ‘grossed down’ in the same ratio. See more information here.

Will penalties apply?

Yes, penalties will apply when:

An employer claims the ETI for an employee who qualifies and earns less than the minimum wage (or less than R2 000 where a minimum wage is not applicable). A penalty equal to 100% of the ETI claimed for that employee will be imposed. This will lead to an under-payment of employee’s tax and possible interest and penalties in terms of the Tax Administration Act.
An employer is believed to have displaced an employee in order to employ an employee who qualifies. A penalty of R30 000 will be levied, for each employee displaced.

How long will it be available?

The ETI came into effect on 1 January 2014 and it will end on 28 February 2029.

HOW DOES THE EMPLOYMENT TAX INCENTIVE (ETI) WORK?

Top Tip: To work out if you are a qualifying employer click here.

Qualifying employers will have to calculate and claim the incentive on a monthly basis. This amount must be completed on the Monthly Employer Declaration (EMP201), which was amended.

Experiencing issues?

Top Tip: Remember you may only claim the ETI from the month of January 2014 for all qualifying employees employed from 1 October 2013. The amount which may be claimed must not be back-dated to October 2013. The ETI became effective 1 January 2014, and an employer is only eligible to receive the ETI from this date.

How do I calculate my ETI?

Follow these four steps on a monthly basis to calculate your ETI amount which may be claimed:

1. Identify all qualifying employees for the month

2. Work out the applicable employment period for each qualifying employee

3. Then work out each employee’s “monthly remuneration”

When working out the remuneration amount to be used to calculate the ETI, if the qualifying employee has been employed for:
- 160 hours in the month, the actual remuneration amount paid must be used
- Less than 160 hours in the month, the remuneration amount must be ‘grossed up’ to 160 hours per month to calculate the value of the ETI. The amount can then be calculated and be ‘grossed down’ in the same ratio.

Example
If the qualifying employee was employed for 80 hours in the month and is paid R1 500, the remuneration must be ‘grossed up’ to 160 hours to check whether the amount falls within the wage requirements.

Determine the remuneration amount for 160 hours a month: “Gross up to 160 hours”: 160/80 hours = 2
Actual remuneration received X 2 = R1 500 X 2 = R3 000 (within the wage requirements).

4. Calculate the amount of the incentive per qualifying employee as per the table below.

Please note: Where the employee has been employed for less than 160 hours ‘gross down’ in the same ratio as ‘grossed up’. This means that the ETI amount which may be claimed must be divided by the 2 from the example above.

Top Tip: Remember to always do all calculations in brackets first.

The Monthly Calculated ETI amount per qualifying employee is within the prescribed legislated threshold.

Determination of the Employment Tax Incentive

4.1 Tax periods (months) from January 2014 to February 2019

The monthly calculated ETI amount per qualifying employee is determined as follows:

- For the first twelve months of employment –

Monthly Remuneration	Determination	Monthly Calculated ETI Amount
R0 – R2000	50% x monthly remuneration	R0 – R1000
R2001 – R4000	Fixed at R1000	R1000
R4001 – R6000	Formula: X = A – (B x (C – D)) X = monthly calculated amount A = R1000 B = 0,5 C = Monthly Remuneration D = R4000	R 999 – R0

- For the second twelve months of employment –

Monthly Remuneration	Determination	Monthly Calculated ETI Amount
R0 – R2000	25% x monthly remuneration	R 0 – R499
R2001 – R4000	Fixed at R 500	R500
R4001 – R6000	Formula: X = A – (B x (C – D)) X = monthly calculated amount A = R500 B = 0,25 C = Monthly Remuneration D = R4000	R499 – R0

4.2 Tax period (months) from March 2019

The monthly calculated ETI amount per qualifying employee is determined as follows:

- For the first twelve months of employment –

Monthly Remuneration	Determination	Monthly Calculated ETI Amount
R0 – R2000	50% x monthly remuneration	R0 – R1000
R2001 – R4500	Fixed at R1000	R1000
R4501 – R6500	Formula: X = A – (B x (C – D)) X = monthly calculated amount A = R1000 B = 0,5 C = Monthly Remuneration D = R4500	R 999 – R0

- For the second twelve months of employment –

Monthly Remuneration	Determination	Monthly Calculated ETI Amount
R0 – R2000	25% x monthly remuneration	R 0 – R499
R2001 – R4500	Fixed at R 500	R500
R4501 – R6500	Formula: X = A – (B x (C – D)) X = monthly calculated amount A = R500 B = 0,25 C = Monthly Remuneration D = R4500	R499 – R0

In working out the first or the second 12-month period, only the months in which the employee was a qualifying employee is considered.

For example, the employee was employed on 1 March 2015 and qualified for ETI in the months March, April, May. Due to additional income received, the employee did not qualify for ETI for the months June and July. From August, the employee received normal income and qualified for ETI again. To determine the 12 months for calculation purposes, March, April, May, August till April must be included. This means that to calculate ETI you use 12 qualifying months and not calendar months.

Source: SARS