Employment Tax Incentive (ETI)

What is it?

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 the eligible employer to reduce their amount of Pay-As-You-Earn (PAYE)  while leaving the wage received by the employee unaffected.
  • For example, eligible employers who are registered for PAYE, and who employ a qualifying employee for the full month of February 2024 and earns R2 500, will get R1 500 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 .
• Eligible employers will be able to claim the incentive for a maximum of 24 months per qualifying employee. Click here for more information.
• The incentive amount differs based on the monthly remuneration paid to each qualifying employee. 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 regulation by the Minister.

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.

• 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 qualifying company as contemplated in section 12R of the Income Tax Act that carries on a trade within the SEZ;
• 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 under a wage regulating measure or is paid the national minimum amount contemplated in the National Minimum Wage Act and not more than R7 500 remuneration. If there is no prescribed wage regulating measure or not subject to section 3 of the National Minimum Wage or exempt from the requirements of the National Minimum Wage Act, a wage of at least R2 500 (where the qualifying employee was employed for 160 hours in a month) must be paid.

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 ETI amount can then be calculated and be ‘grossed down’ in the same ratio. See more information here.

Will penalties apply?

• An employer claims the ETI for an employee who qualifies and earns less than the minimum wage (or less than R2 500 where a minimum wage is not applicable). A penalty equal to 100% of the ETI claimed for that employee will be imposed. This may 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.
• An employer receives the ETI in respect of an amount that must be disregarded in terms of the proviso to the definition of ‘monthly remuneration’ in section 1(1) of the ETI Act. A penalty equal to 100% of the ETI received in respect of that employee in respect of each month that the employer received the ETI relating to the amount that should have been disregarded. 
• An employer reduces the employees’ tax payable with an ETI amount to which the employer is not legally entitled or wrongly calculated will be subject to an understatement penalty under the Tax Administration Act.

How long will it be available?

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