With the introduction of the Employment Tax Incentive (ETI) Act in 2013, the South African government sought to incentivise business to take on additional employees at a lower wage level and off-set their costs through the calculated ETI incentive. Through the deduction of the ETI allowance, businesses are therefore able to expand their staff capacity and claim back some of this cost trough the ETI incentive.
There are very specific requirements for eligible employees under ETI though and an employee is only eligible to receive the ETI allowance if he or she:
- Has a valid South African ID, Asylum Seeker permit or an 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)
- 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
- 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.
*A connected person or relative means your spouse or anybody related to you or your spouse by blood in the third degree (e.g. great great grandfather etc.), and any spouse of these persons
Similarly, there are requirements to determine an eligible employer for ETI allowances, and a company will only qualify for the deductions if:
- Is registered for Employees’ Tax (PAYE), or must be eligible to register for 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 the Minister by regulation.
If, however, all of the requirements are met for both an eligible employer, and an eligible employee, the Company is allowed to process the corresponding ETI deduction. After successive amendments to the ETI bill, the current benefits are calculated as per the below table, as from 01 March 2022:
Practically this means that if a Company recruits a new staff member earning between R2,000.00 to R4,499.99, that Company will be eligible for a R1,500.00 ETI deduction per month. Once this staff member has been with the company for >12 months, that allowance will drop to R750.00. The actual ETI allowance (R1,500.00 per month in the above example) is then deducted against the Company’s Pay As You Earn (PAYE) liability to SARS on a monthly basis and declared on the relevant EMP201.
It is important to note that the ETI allowance is applicable to all qualifying employees, including learners studying on learnerships, which are deemed to be employees of the Company for the duration of the learnership.
Where an ETI amount was not claimed or a lower amount than the qualifying amount was claimed for a specific month, the shortfall must be claimed in the month when the error was realised, provided that the month is in the same reconciliation period, e.g. if ETI was not claimed for the month of May and the shortfall is discovered in July, the shortfall amount must be added to the ETI calculated on the EMP201 for July.
Although there are distinct advantages to the proper administration of the Employment Tax Incentive allowances, it must be done in a proper, detailed and coordinated manner, so as to avoid any penalties and over- or under reporting. ETI allowances can also significantly offset the cost of implementing learnership interventions, but again these processes have to managed very carefully and strategically. Compass Consulting can assist to holistically plot out a proper ETI system and strategy, including learnership claims and we are available to guide and support the process from inception.
