ETI (Employee tax incentives) is a tax concession to encourage employers to hire young and less experienced employees to gain the necessary skills and work experience to further their careers. ETI effectively reduces the overall cost of employment to an employer by allowing a reduction in the monthly Pay-as-you-earn (PAYE) liability to SARS without affecting the employee’s wage.
How To Qualify and Claim.
To qualify for an ETI claim, the employer should be a qualifying employer who employs qualifying employees. The employer must be registered for PAYE and be tax compliant, not a municipal entity, and not in the national/provincial or local sphere of government. A qualifying employee must possess a South African identity document between 18 and 29 years old and be paid between R2’000 and R6’500.
An organisation may claim ETI for both Skills programmes and full Qualifications, but the learner must be between 18-29 years of age, with an approved learnership or skills development agreement in place.
Who can claim?
Employers registered for PAYE purposes and whose tax affairs are in order are permitted to claim ETI. The employer may claim ETI depending on the value of the monthly remuneration paid to the qualifying employee. (Where the employee works less than 160 hours per month, the remuneration amount must be calculated on 160 hours per month.)
An employer can claim the ETI when registered for employee’s Tax (PAYE) with SARS, but the employer must meet all minimum registration requirements. Where an employer is non-compliant, the ETI may be rolled over to the following month until such employer becomes tax compliant. However, if that employer does not become tax-compliant at the time of submission of the EMP501 return, that rolled-over amount is reduced to nil.
How much can you claim?
An employer can claim the incentives by decreasing the amount of PAYE that is payable to the SARS for every qualifying employee that the employer hires. This is done by completing the ETI field on the employer’s monthly EMP201 submission to SARS. The employer may only claim ETI for 24 qualifying months.
The ETI enables employers to decrease their PAYE obligations to SARS for each qualifying employee hired, with claims made via the ETI field on the monthly EMP201 submission (South African Revenue Service, n.d.). The incentive can be claimed for a maximum of 24 qualifying months.
Penalties and Sanctions.
Penalties apply when employers claim the ETI for qualifying employees who earn less than the minimum wage of ZAR 2,000 (South African Revenue Service, n.d.). SARS imposes a ZAR 30,000 fine on employers who displace or unfairly dismiss employees and replace them with qualifying employees (Labour Relations Act 66 of 1995, s. 194). Displacement may result in underpaying employee tax, thereby incurring interest pursuant to the Tax Administration Act (Tax Administration Act 28 of 2011, s. 187).
Find more information on how to implement employment equity in my other articles or visit our website to enrol for the next employment equity training course.
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By Stephan du Toit
Senior Advisor Employment Equity.
Website: employmentequity.co.za
eMail: info@employmentequity.co.za
WhatsApp+27825613022
Landline: +27212505007
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References
South African Revenue Service. (n.d.). Employee Tax Incentive (ETI). Retrieved from https://www.sars.gov.za/TaxTypes/PAYE/Pages/Employee-Tax-Incentive.aspx
Basic Conditions of Employment Act 75 of 1997.
Skills Development Act 97 of 1998.
Labour Relations Act 66 of 1995.
Tax Administration Act 28 of 2011.
