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Empowering the Youth: The Employment Tax Incentive

Empowering the Youth: The Employment Tax Incentive

Introduction

Commonly referred to as the “youth wage subsidy”, the Employment Tax Incentive (ETI) Act came into effect as of the 1st of January 2014 in an attempt to incentivise the employment of young South Africans between the ages of 18 and 29. The youth unemployment crisis is compounded by the fact that young people often lack the necessary skills and experience required by the corporate world. This incentive hopes to facilitate an increased chance of young South Africans being able to access the workforce, and thus – the formal economy.

How does it work?

• You need to qualify as an employer to access the ETI benefits.

• These benefits only apply to youth who qualify.

• These benefits hope to reduce the cost of employing young people.

• You will be able to claim the incentive for a 24 month period for all employees who qualify.

• It will reduce your 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.

• There is no limit to the number of qualifying employees that an employer can hire, and thus receive the incentive for.

• The incentive is currently scheduled to end on 31 December 2016.

 

 

How do I qualify for ETI?

 

Your business will be eligible to access ETI benefits, as long as:

 

  • You are registered for employees’ tax (PAYE);
  • You are not an organ of state (national, provincial or local sphere of government) or a public entity as per Schedule 2/3 of the Public Finance Management Act (unless  designated by the Minister of Finance); and
  • You are not disqualified by the Minister of Finance due to displacement of an employee or have failed to meet such conditions as may be prescribed by the Minister by regulation.

 

 

Which employees qualify for ETI?

 

  • Must have a valid South African ID;
  • Must be 18 to 29 years old;
  • Is not employed as a domestic worker
  • Is not a  spousal/familial relative to the third-degree;
  • Must have been 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 R2000.00 per month if a minimum wage is not applicable (i.e. R2000.00 per month as the minimum monthly salary where a sectoral wage determination is not in place).

 

 

Calculating the ETI:

• You must calculate and claim the incentive on a monthly basis.

• Identify all qualifying employees in respect of that month.

• Determine the applicable employment period for each qualifying employee.

• Determine each employee’s “monthly remuneration”.

• Calculate the amount of the incentive per qualifying employee as per the table below:

 

Monthly

Remuneration

ETI per month during first 12 months of employment

R0 – R2000

50% of Monthly Remuneration

R2001 – R4000

R1000

R4001 – R6000

Formula:

R1000 – (0.5 x (Monthly Remuneration – R4000))

 

Step 1: Take the Monthly Remuneration and subtract R4000

 

Step 2: Take the result in step 1 and halve the number

 

Step 3: Take R1000 and subtract the amount calculated in step 2

 

Monthly

Remuneration

ETI per month during the next 12 months of employment

R0 – R2000

25% of Monthly Remuneration

R2001 – R4000

R500

R4001 – R6000

Formula:

R500 – (0.25 x (Monthly Remuneration – R4000))

 

Step 1: Take the Monthly Remuneration and subtract R4000

 

Step 2: Take the result in step 1 and take a quarter of this number

 

Step 3: Take R500 and subtract the amount calculated in step 2

 

Note: In working out the first or the second 12-month period, only the months in which the employee was a qualifying employee is considered. For example, the employee may be a qualifying employee in the first three months but not a qualifying employee in the fourth and the fifth months. If the employee is a qualifying employee in the sixth month, the sixth month is month number four as far as the 12-month period is concerned.

How to apply the ETI effectively:

By applying the above formula, the most cost-effective monthly salary amount would be R2000.00 per month.

For example, where a monthly salary is:

 

R1000 – the incentive is R500;

R2000 – the incentive is R1000;

R3000 – the incentive is R1000;

 

R4000 – the incentive is R1000;

R5000 – the incentive is R500; and

R6000 – the incentive is R0.

 

 

 

 

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