Hiring young employees can save your business a ton of money thanks to this great tax incentive
It’s an unfortunate truth that millions of young South Africans are excluded from participating in economic activity due to high youth unemployment. In addition to leaving our youth severely discouraged, high youth unemployment means young people are not gaining the skills or experience they need to accelerate their careers and drive the country’s economy forward.
Employers are very reluctant to employ young people due to the current lack of skills and experience among youth as well as perceptions regarding the restrictiveness of labour regulations, thus simply adding fuel to the vicious cycle above.
Fortunately, there is way where business owners can combat this cycle, grow the economy and get incentivised for doing so. Just over five years ago, SARS launched the Employment Tax Incentive or ETI for short and it is aimed to encourage employers to hire young work seekers and help empower our country’s youth.
Sadly, very few business owners know about ETI and are missing out on this great opportunity. Cornerstone Tax and Accounting is all about making sure your business remains relevant, keeps growing and stays financially sound – that’s why we have summarised everything you need to know about ETI.
What are the benefits for employers?
- It will reduce an 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 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). Employers will be able to claim the incentive for a 24-month period for all employees who qualify.
Which employers qualifies for ETI?
The employer is eligible to claim the ETI if the employer:
- Is registered for Employees’ Tax (PAYE) or eligible to register for PAYE (e.g. the employer can’t 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.
Which employees qualify for ETI?
An employee can qualify for the ETI if he or she:
- 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 an employer that is operating inside 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 or if a minimum wage doesn’t apply, is paid a wage of at least R2 000 (where the qualifying employee was employed for 160 hours in a month) and not more than R6 000 remuneration.
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 amount can then be calculated and be ‘grossed down’ in the same ratio.
If you have any questions about the ETI or if you need help with your business accounting and bookkeeping, click here to learn more about Cornerstone Tax and Accounting’s expert service offering. Feel free to share this article with friends and family and remember to follow us on Facebook, Twitter and LinkedIn for more interesting and useful content.
This article was adapted from Employment Tax Incentive (ETI)published by SARS on 12 September 2019. For the original article, please click here https://bit.ly/2AXy88s