Employment Tax Incentive (ETI) Explained

March 12, 2024
Posted by Corné Welman

PaySpace Experts Explain

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 job seekers.

The aim of the ETI is to facilitate the increased employment of young job seekers.

WHAT IS EMPLOYMENT TAX INCENTIVE (ETI)

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

WHAT ARE THE BENEFITS OF ETI

ETI will reduce the employer’s 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 R2 000, 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:

Employers will be able to claim the incentive for a 24 qualifying 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.

This incentive will complement existing government programmes with similar objectives, e.g. learnership agreements.

WHO ARE THE EMPLOYERS THAT QUALIFY?

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

Is registered for Employees’ Tax (PAYE), or is eligible to register for PAYE (i.e. the employer cannot 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.

HOW DO I DETERMINE 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

Was employed by the employer or an associated person to the employer on or after 1 October 2013 and

Is not a domestic worker

Is not a “connected person” to the employer

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

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 000 remuneration. If there is no prescribed wage regulating measure or not subject to or exempt from the requirements of the National Minimum Wage Act, a wage of at least R2 000 (where the qualifying employee was employed for 160 hours in a month) must be paid.

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

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.

We hope you found this information useful. If you have any questions on how the Employment Tax Incentive (ETI) relates to payroll and the PaySpace system, please feel free to get in touch with our support team.

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