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 and less experienced 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 during the first 12 months or second 12 months of the ETI programme. 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)
    • 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
  • Is 18 to 29 years old (please note that 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
  • 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 paid a wage not below R2 000 per month if a minimum wage is not applicable.
Top Tip: Click here and work out how much the incentive can save you.

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 in respect of 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 incentive is currently scheduled to end on 31 December 2016 but its effectiveness will be reviewed to determine whether to continue with the incentive.
 
An employer is able to claim the incentive for a 24 month period for all employees who qualify.
 

Need help?

Call the SARS Contact Centre on 0800 00 SARS (7277), or visit your nearest SARS branch.
 
Top Tip: Formulas are sometimes difficult to understand so we have step-by-step examples for ETI, click here.
 
 

 

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 Top FAQs

What do I do if an employee doesn't qualify each month?
In determining the first or the second 12 month period, only the months in which the employee qualifies are taken into account.

Can the Monthly Employer Declaration (EMP201) have a negative amount?
The Pay-As-You-Earn (PAYE) on the EMP201 may not result in a negative amount. Where the Employment Tax Incentive (ETI) is more than the PAYE liabilty, a zero (0) must be completed in the Nett PAYE amount.

Will the Employment Tax Incentive (ETI) be applicable to employers who has received ministerial determination to pay a different minimum wages from the sectorial determination for farmworkers?
The ETI will be applicable as long as the employer pays the ministerial determination wage and all the other requirements are met.

When will an employer not be allowed to claim the Employment Tax Incentive (ETI) in a specific month?
An employer can’t claim the ETI if on last day of month – failed to submit any return-declaration; tax outstanding, excluding tax debt – Where a deferral payment arrangement made; been suspended pending objection or appeal or; tax debt less than R100

How does the roll-over of the Employment Tax Incentive (ETI) work?
An incentive amount may be rolled over –: if the incentive amount available exceeds employees’ tax due in a month. The excess may be carried forward to the next month;