“EMPLOYEE TAX INCENTIVE”

Government have introduced a new employee tax incentive (ETI). Given the disproportionately high number of young South Africans and the limited available jobs, they identified a future problem that needs to be addressed today.

The aim of the incentive is to promote the employment of young South Africans, promote the employment of less experienced employees as well as promoting the creation of more jobs.

If you are not claiming against this incentive you are missing an opportunity. The incentive is claimed by the business. Some of the options resulting from this incentive are:

• The incentive is paid over to the employee so they earn more from the same salary
• The incentive is used to employee more employees
• The incentive is used to cover the expenses of training and development of employees

There are some guidelines for claiming such as:

• The employer must be registered for PAYE
• You must be in good standing with SARS
• The employee must be older than 18 and younger than 29
• You are not allowed to remove/retrench/dismiss an employee to create an opportunity to employ someone that qualifies for this incentive. This is seen as displacement of employees and carries a R30’000 penalty for each employee (based on factual finding of CCMA or DRC)
• The employee must also not be “connected” to you. A connected person or relative means your spouse or anybody related to you or your spouse by blood in the third degree (e.g. great great grandfather etc.), and any spouse of these persons
• Only employees employed after 1 October 2013 can be claimed against
• You need to pay the minimum wage and if no minimum wage is prescribed, pay at least R2’000
• Employees who earn more than R6’000 per month do not qualify
• The incentive can be claimed for 24 monthly periods (not necessarily consecutive)
• There is no limit on the claim, but you cannot claim more than the PAYE you are liable for, but the excess rolls over to the next month (maximum of R6’000 per employee)
• The incentive ranges from R500 to R1’000 per employee and is halved in the second year of employment

The incentive further aims to provide these young employees with experience and skills to seek jobs in future and better compete with other job seekers.

The incentive is a temporary solution and is valid until 31 December 2016 even if you have claimed for less than 24 months.

BEST PRACTICES:

DON’T dismiss older employees to make space for younger employees

DON’T forget that in order to claim you need to be in good standing with SARS

DO immediately speak to your payroll administrator and accountant to start claiming

DO remember to roll over amounts to the next month if your PAYE liability was less than the incentive you claim

QUICK WINS:

There are many employers who receive a substantial benefit from the employer’s tax incentive. Start by confirming the age of all your employees earning less than R6’000 per month. Confirm that they started employment after 1 October 2013. Make sure this incentive is clearly indicated on your Management Accounts so that when it stops you can clearly determine the impact on the bottom line.