The Employment Tax Incentive (ETI) is an incentive that was launched by SARS with the aim of encouraging employers to hire young job seekers. It reduces the cost of hiring young people by reducing the amount of PAYE owed by the employer to SARS without affecting the employees’ wages.
ETI may only be claimed for qualifying employees. An individual is a qualifying employee if they:
- have a valid South African ID, Asylum Seeker permit or an ID issued in terms of the Refugee Act;
- are 18 to 29 years old*;
- were employed by the employer or an associated person to the employer on or after 1 October 2013; and
- are paid the minimum wage applicable to that employer or if a minimum wage doesn’t apply, are paid a wage of at least R2 000 and not more than R6 000.
- are not a domestic worker;
- are not a connected person to the employer;
*Note that an employee’s age must be determined at the end of each month for which the ETI is being claimed. Therefore, an employee will start qualifying in the month that they turn 18 and will stop qualifying during the month that they turn 30. For example, an employee who turns 18 on 24 September won’t qualify yet in August but will qualify in September. Also, an employee who turns 30 on 11 November will still qualify in October but won’t qualify in November.
All of the above requirements must be met before you are eligible to claim ETI for an employee.
The first four aspects are handled automatically by the system based on how your employees are set up. It is, therefore, crucial to ensure that you have captured their birthdates, appointment dates and ID numbers correctly under their Basic Info section.
If the employee does not meet one of the requirements in the last two bullets – i.e. they are a domestic worker / connected person, please ensure you mark them as such on their Classification screen. This is discussed in more detail in the following article:
The value of the ETI the employer may claim per qualifying employee depends on the amount of the monthly remuneration paid to each of them. Employees’ remuneration can fall into one of three income brackets, each with its own calculation. Furthermore, different calculations apply in the first and second years of the incentive.
Where an employee is employed for 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. The ratio is determined by dividing 160 by the number of actual hours employed.
Detailed calculation examples for all of the above scenarios can be found on the SARS website.
Note: there is a difference between the concept of wage and remuneration for the purposes of calculating ETI. An employee’s wage is the amount they are paid in respect of their ordinary hours of work and is determined by the employment agreement – it is used to determine whether or not they qualify for ETI. Their remuneration is the actual amount that they are paid at the end of the period and is used to calculate the amount of ETI that the employer may claim.
The ETI calculated is used to reduce an employer’s PAYE liability for a given month and is reflected on the EMP201 along with any ETI carried forward and the amount of ETI utilised. Where the PAYE amount is lower than the ETI, the employer’s PAYE liability will be 0; any ETI not utilised is carried forward to the following period. Where the PAYE exceeds the ETI, the full ETI may be used to reduce the PAYE liability and nothing will be carried forward. Please see the following article for more information on PAYE:
ETI may not be carried forward to March or September; therefore, any ETI not utilised at the end of February and August each year will need to be claimed back from SARS.
ETI may be claimed for 24 months per qualifying employee and these 24 months need not be consecutive or correspond to the employee’s months of employment. Where an employee has separate contract periods with a single employer, the ETI month they are in will follow on from the previous contract period. Similarly, if an employee is transferred between companies that are associated persons, the months must be counted as if they had not moved at all.
For more information about how ETI is reported to and claimed from SARS, please refer to the following article: