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Employee Tax Incentive

Employee Tax Incentive

The Employment Tax Incentive was introduced with the objective of generating employment opportunities for young and less experienced work seekers.

Generating employment opportunities for young and less experienced work seekers.

What is the ETI?

The Employment Tax Incentive (“ETI”) was introduced with the objective of generating employment opportunities for young and less experienced work seekers.

The incentive reduces the cost of hiring young people to employers through a cost-sharing mechanism with government, while leaving the wage the employee receives unaffected. The ETI was implemented with effect from 1 January 2014 and will end on 28 February 2029.

What are the benefits for employers?

The cost to the employer of hiring young people is reduced, as the employer is allowed to reduce the amount of employees’ tax (PAYE) that it is required to pay to the South African Revenue Service (“SARS”) in respect of a qualifying employee’s remuneration.

If an eligible employer hires a qualifying employee, the employer can deduct the ETI from the total amount of employees’ tax payable to SARS.

This incentive will complement existing government programmes with similar objectives, for example, learnership agreements.

Which employers may claim the ETI?

If the employer is registered with SARS for purposes of paying monthly employees’ tax to SARS, the employer will be eligible to claim the ETI.

An employer is not eligible to claim the ETI if:

‒  The employer is not compliant in respect of its tax obligations i.e. if the employer has:

·  any outstanding tax returns; or

·  an outstanding tax debt.

‒   Employees are displaced

‒   An employee is deemed to have been displaced if:

·  the dismissal of an employee constitutes an unfair dismissal under the Labour Relations Act; and

·  the employer replaces a dismissed employee with a qualifying employee in order to benefit from the ETI.

‒  The wage paid to the employee is less than the prescribed amount. Effective 1 August 2019, the minimum wage payable to an employee for purposes of the ETI is the higher of:

·  the amount payable by virtue of a wage regulating measure (e.g. a collective agreement, binding bargaining council agreement or a sectoral determination) applicable to that employer; or

·  the National Minimum Wage (“NMW”) (i.e. R20 per hour); or

·  the amount stipulated under Schedule 2 of the NMW Act (i.e. learnership allowances).

The ETI is aimed at private sector employers; public sector and state-owned entities are currently excluded.

Which employees qualify for the ETI?

An individual is a qualifying employee if he or she:

·  has a valid South African identity document, is an asylum seeker or refugee (with an asylum seeker permit or identity document, issued in terms of section 30 of the Refugees Act, 1998);

·  is not a connected person in relation to the employer. (A connected person in relation to a natural person is defined to include the spouse of such person or anybody related to him/her or his/her spouse within the third degree of consanguinity, and specifically includes an adopted child).

·  is a permanent or part time employee;

·  is between 18 and 29 years of age – the age restriction is applicable to individuals not employed by an employer located in a Special Economic Zone (“SEZ”);  

·  is employed by an employer located in a SEZ – in these circumstances there is no age restriction;

·  is not a domestic worker;

·  earns not less than the prescribed wage (discussed above);

·  earns remuneration of less than R6 500 per month (remuneration includes the employee’s salary plus the value of all fringe benefits)

·  was employed on or after 1 October 2013.

Where are the Special Economic Zones (“SEZ”)?

Special Economic Zones (SEZs), are geographically designated areas of a country set aside for specifically targeted economic activities, supported through special arrangements (that may include laws) and systems that are often different from those that apply in the rest of the country.

The six SEZs are:

·   Coega

·   Dube Trade Port

·   East London

·   Maluti-A-Phofung

·   Saldanha Bay

·   Richards Bay

How is the ETI claimed?

An employer can claim the incentive by decreasing the amount of PAYE that is payable to SARS for every qualifying employee hired by the employer. This is done by completing the ETI field on the employer’s monthly EMP201 return to be submitted to SARS.

The monthly ETI that may be claimed per qualifying employee is as follows:

 

Value

 

First 12 months

 

Second 12 months

 

R 0 - R2000

 

50% of Monthly Remuneration

 

25% of Monthly Remuneration

 

R 2001 – R 4500

 

R 1000 per employee

 

R 500 per employee

 

R 4501 – R 6500

 

R 1 000 – (0.5 x (Monthly Remuneration – R4 000))

 

R 500 – (0.25 x (Monthly Remuneration – R 4 000))


How can KPMG assist?

KPMG has an experienced team of tax professionals who can assist with the implementation of the ETI for your business.

We can assist employers to implement a robust process for claiming ETI in order to manage their risk, as well as identify potential opportunities that will benefit the employer.

Our assistance includes, inter alia, the following:  

‒  Interpretation of the changing legislation and application to specific business scenarios.

‒  Reviewing the payroll parameters where the ETI has already been implemented to reduce the risk of non-compliance.

‒  Conducting a review of the ETI claimed by an employer in order to:

·   ensure that the ETI is claimed in respect of qualifying employees only; and

·   reduce the risk of interest and penalties being imposed by SARS in respect of ETI over-claimed. 

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