Employment Tax Incentive

There are many unskilled and inexperienced youth in South Africa and it is difficult for them to start contributing to the economy without experience. Many employees have been reluctant to hire inexperienced unskilled youth, and contributing to this fear has been the restrictiveness of the labour regulations.

Last year, SARS implemented a new incentive scheme for businesses to employ young inexperienced work seekers, called the Employment Tax Incentive (ETI). It reduces the employers cost, of hiring young workers, through a cost-sharing mechanism with the government. It is in effect since the 1st of January 2014.

How do I qualify?

An employer qualifies for ETI if the employer is:

    • Registered for employees’ tax (PAYE);
    • Not in the national, provincial or local sphere of government;
    • 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);
    • Not a municipal entity;
    • Not disqualified by the Minister of Finance due to displacement of an employee or by not meeting such conditions as may be prescribed by the Minister by regulation.

An individual qualifies as an 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 not an employee in respect of whom an employer is disqualified  to receive the ETI (i.e. the employee is paid below the minimum  wage applicable to that employer or paid a wage below R2 000 per month if a minimum wage not applicable).

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

 How does it work?

An employer must follow these steps, and calculate & claim the incentive on a monthly basis:

  • Identify all qualifying employees in respect of that month
  • Determine the employment period for each qualifying employee
  • Determine each employee’s “monthly remuneration”
  • The EMP201 form was amended to include a field for claiming ETI, which can be seen on this SARS link.
  •  Calculate the amount of the incentive per qualifying employee as per the table below:
Monthly Remuneration ​ Employment Tax Incentive per month during the first 12 months of employment of the qualifying employee ​ Employment Tax Incentive per month during the next 12 months of employment of the qualifying employee​
R 0 – R2 000 ​ ​50% of Monthly Remuneration ​25% of Monthly Remuneration

R 2001 – R4000 ​

​R1 000 ​R500

R 4001 – R6000 ​

Formula: R1 000 – (0.5 x (Monthly Remuneration – R4 000)) ​ ​Formula: R500 – (0.25 x (Monthly Remuneration – R4 000))

To determine the first or the second 12-month period, only count the months where the employee was qualified. For example, the employee may be qualified during the first three months and not qualified in the fourth and the fifth months. If the employee is qualified in the sixth month, then the sixth month is month is counted as number four, as far as the 12-month period is concerned.

How long is it available for?

The initial end date of 31 December 2016 was extended to 28 February 2019.

This information has been obtained from the SARS website