What is the Employment Tax Incentive (ETI) and how can we benefit?

A question we are increasingly being asked is ‘What is the Employment Tax Incentive (ETI) and how can we benefit?’

Some background: The Employment Tax Incentive Act 26 of 2013 came into effect on 1 January 2014 and is available to employers in the private sector who are registered for PAYE.

The Employment Tax Incentive was extended to February 2019; however, the government has proposed an additional five-year extension of the employment tax incentive to 2024. The extension is based on a review that the employment tax incentive had ‘modest’ positive effects on youth employment.

The Employment Tax Incentive is aimed at encouraging employers to hire young work seekers resulting in an Employment Tax Incentive through a mechanism which allows for a business tax relief.

How does the Employment Tax Incentive work?

The Employment Tax Incentive allows the employer to collect a portion of the employee’s tax (PAYE Tax credit). The state will contribute to the cost of employing inexperienced youth.

The ETI does not affect the wage received by the employee. So, if a qualifying business employs a qualifying candidate, the employer could in effect save half of the total amount usually paid to SARS.

The value of the Employment Tax Incentive claim depends on the value of the monthly remuneration paid to the qualifying employee and the number of hours worked by the employee.

There are certain criteria that qualify businesses for the Employment Tax Incentive. The employer can claim the Employment Tax Incentive if:

• The employer is registered for Employees tax (PAYE)
• The employer does not form part of the national, provincial or local government
• The employer is not a public or municipal entity

Similarly, there are criteria that the employee must meet in order to qualify:

• The employee must have a valid South African ID or an Asylum Seeker permit
• The employee is not a domestic worker
• The employee is paid the minimum wage applicable to that Employer
• Must be aged 18 – 29 years old however this doesn’t apply if the employment falls within a special economic zone (SEZ).

The Employment Tax Incentive only applies to employees who join the organisation on or after 1 October 2013.

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

The time frame, however, is limited to a period of 24 months which the Employee can claim on all qualifying employees.

The amount of ETI allowable decreases the monthly amount of the employees’ tax that is payable by an employer through the monthly PAYE return (EMP201) or an ETI refund can be claimed on the Employer Reconciliation submissions (EMP501) for the end of the reconciliation period,

Qualifying employees earn less than R6 000 per month.

There are certain other conditions and penalties which apply for an Employer which we are happy to discuss with you.

Get in touch with Tuffias Sandberg to find out if you qualify for the Employment Tax Incentive and how to get your tax relief.