How to claim tax back for employing young people – the Employee Tax Incentive explained

65.5% of South Africa’s youth are currently unemployed, a figure that has increased since the start of the Covid-19 pandemic. 

That’s why finance minister Enoch Godongwana announced that Employee Tax Incentive will increase to R1500 per month for the first year, and R750 per month for the second year, in his recent delivery of South Africa’s budget for 2022. 

This is great news both for young work seekers and employers. The bad news, however, is that due to abuse of the scheme two new provisions have been added to curb future abuse. If you’re already familiar with how to claim ETI – skip to the bottom of the article to see the amendments to the ETI Act. 

What is the Employee Tax Incentive (ETI)? 

The Employee Tax Incentive can be claimed for a period of up to 24 months for each employee between the ages of 18 and 29. It’s actually a reduction in Employee’s Tax as SARS refunds the employer from the amount of ‘Pay As You Earn’ the employer paid for young employees without affecting their wages or salary. The employer must claim this benefit from SARS monthly. 

President Cyril Ramaphosa said in his State of the Nation Address that the incentive, which was implemented in 2014 to encourage companies to hire young people, has been very helpful to remove barriers to entry into the workplace. Unfortunately, it is not available to domestic workers and only available to South Africans, asylum seekers or refugees. 

SAIBA’s Work Readiness Program 

SAIBA is committed to removing obstacles graduates experience when entering the professional accounting world to reduce youth unemployment. The U²Pro Program equips students with a methodology that they can apply in any work environment, as well as the self-confidence and inter-personal skills needed to know how to ask for help. The U²Pro Program has been successfully executed the last few years to replace the requirement of SAIBA’s BA(SA) and BAP(SA) structured work experience record (“Logbook”) for entry into the designation and to equip participants with the required workplace readiness skills. For more information, click here.  

If you would like to hire young people and benefit from ETI, follow these steps… 

  1. Ensure that both you and your young employee qualify.  

a. As the employer, you must already be contributing Employee’s Tax, and you can’t be a government, public, or municipal entity. 

b. The employee must be between 18 and 29 years old or work insidea special economic zone (SEZ) for an employer that is operating inside the SEZ. According to new amendments to the ETI Act employees who are still studying do not qualify (see Changes to the ETI Act below). 

  1. Calculate your claims. 

SARS provides the following table for calculating an Employee’s ETI from 1 March 2022, but the incentive can be claimed for employment dating back to 1 January 2014. To calculate this, see SARS guidelines.  

  1. You must complete an Employer Declaration (EMP201) with SARS on a monthly basis.  
  1. Check if your reconciliation balances.  

SARS recommends adding the value of code 4118 of all IRP5/IT3(a) certificates that you are submitting and comparing the summed value to the sum of ETI calculated Total (the first 6 months) and ETI calculated Total (the second 6 months) on the EMP501 form. If the values are on the EMP501 recon is more than the value from the certificates, the reconciliation will fail ETI balancing.

Changes to the ETI Act 

SARS penalises those who claim ETI improperly, but it has changed the definitions of “employee”, “monthly remuneration” and “qualifying employee” to curb abuse of it. 

  • An “employee” is now defined as assisting directly or indirectly in carrying on or conducting the business of the person they work for, receiving remuneration from that person, and will have to be documented in the records of that employer as envisaged by section 31 of the Basic Conditions of Employment Act, 1997 (BCEA). 
  • “Monthly remuneration” has been amended to exclude payments like fringe benefits that are not paid in cash.  
  • “Qualifying employees” now excludes those young people who are still studying for their role while working, unless the employer has entered them into a learning programme.  

For more in-depth information, consult SARS’s handy manual on Employment Tax Incentive available here.