How do I align my payroll with the newly promulgated Employment Tax Incentive Act?
The government is implementing the Employment Tax Incentive (ETI) scheme to encourage businesses to employ young people.
In practical terms it means that the employer will now receive an incentive for employing youths, subject to certain conditions, which will be in the form of a reduced PAYE monthly liability.
Businesses implementing the incentive will receive substantial financial benefits as it will contribute to an improved cash flow and will reduce the cost of employing young people, especially for smaller businesses and entrepreneurs.
However, the Act has many technical specifications and requirements which will significantly impact on companies’ payroll systems and processes.
Basic principles of the ETI
1. Determine if you are eligible for the incentive as an employer.
An eligible employer is a private sector employer registered for PAYE.
2. Determine which of your employees will allow you to qualify for an incentive (also referred to as qualifying employees).
The following are some basic steps to follow:
- Step 1
Is the employee between 18 and 29 years old?
No – Continue with Step 2; Yes – Continue with Step 3
- Step 2
Is the employee mainly employed in a Special Economic Zone or an industry designated by the Minister in a Gazette?
No – Do not apply incentive; Yes – Continue with Step 3
- Step 3
Is the employee in possession of a SA ID or an Asylum Seeker Permit in terms of the Refugees Act?
The Asylum Seeker Permit is a temporary permit which you are given pending a decision on your application for refugee status or for asylum.
No – Do not apply incentive; Yes – Continue with Step 4
- Step 4
Does the employee earn equal or more than the minimum wage? The minimum wage is stipulated in the bargaining council rules, collective agreement or the sectoral determination.
If the amount of the wage payable to the employee is not subject to any wage regulating measure, the minimum wage will be seen as R2 000 per month.
No – Do not apply incentive; Yes – Continue with Step 5
- Step 5
Is the monthly remuneration of the employee more than R6 000?
No – Continue with Step 6; Yes – Do not apply incentive
- Step 6
Was the employee employed by the employer or the associated person on or after 1 October 2013?
No – Do not apply incentive; Yes – Continue with Step 7
- Step 7
Is the employee a connected person to the employer or a domestic employee?
Yes – Do not apply incentive; No – Calculate the incentive amount
3. Determine the incentive amount
The incentive will be available for a maximum 24-month period per qualifying employee, broken up into a ‘first 12 months’ period and a ‘next 12 months’ period’.
The incentive must be determined every month by identifying who the qualifying employees are and by doing the above calculation.