The Employment Tax Incentive Act was promulgated on 1 January 2014. It will allow companies to claim back some tax for employing young workers that adhere to certain requirements.
This video will explain how the Act will affect your payroll and how you can implement it.
Frequently Asked Questions
1. What is the Employment Tax Incentive (ETI)?
The Employment Tax Incentive legislation will encourage employer(s) to hire young people by reducing the amount of PAYE payable to SARS, thereby, reducing the cost of employment to the employer while leaving the employee’s earnings unaffected. The effective date of the legislation is 1 January 2014.
2. Is it mandatory for me to setup the VIP system and claim ETI from SARS?
The incentive amount will not calculate until the setup has been completed on VIP. It is not compulsory to claim ETI, but the company will not get the benefit until the setup has been done.
3. If I decide to only do the setup in February can I backdate the ETI Incentive to January?
Unfortunately the system doesn’t allow ETI Incentives to be backdated for previous months. A backup will have to be restored if you want to claim for previous periods.
4. If I do the setup in February can I manually calculate the January ETI Incentive amount outside of VIP?
For reconciliation purposes the incentive amounts need to be included in your CSV file. This file must be submitted in the February and August submission period via E@syfile.
5. How do I know if I am an “Eligible Employer”?
An eligible employer is an employer that is registered for PAYE (because one or more of its employees are liable for PAYE).
A Local, Provincial or National Government
Public Entity (listed in Schedule 2 or 3 to the Public Finance Management Act) Municipal Entity
6. How do I know if a company is a “Public Entity”?
Public entities are listed in Schedule 2 or 3 to the Public Finance Management Act. The list can be found http://www.treasury.gov.za/legislation/pfma/public%20entities/2013-03-15%20Public%20institutions%20Sch%201-3D.pdf
7. How do I know which employees are Qualifying Employees?
The employee will qualify if:
The employee should be between 18-29 years of age
The employee must be in possession of a SA ID (13 digits) or an asylum seeker permit
The employee should only be employed on or after 1 October 2013
The employee should earn at least the minimum wage according to the Bargaining Council, Collective Agreement or Sectoral Determination. If none is applicable, then the employee should earn at least R2000 per month
The remuneration of the employee should not be more than R6000 per month
The employee will not qualify if:
The employee should not be a related person to the employer
The employee is a domestic worker
8. How is the ETI amount calculated?
|Monthly remuneration||First 12 Incentive Months||Next 12 Incentive Months|
|R0 – R2 000||50% of Monthly remuneration||25% of Monthly remuneration|
|R2 001 – R4 000||R 1 000||R 500|
|R4 001 – R6 000||R1 000 – (0.5 x (Monthly remuneration – R4 000)) If remuneration = R6 000, the Incentive = 0||R500 – (0.25 x (Monthly remuneration – R4 000))|
9. What is ETI Actual wage (Basic Company Information Screen)?
“Wage” means the amount of money paid or payable to an employee in respect of ordinary hours of work, in other words the hours an employee ordinarily works in a day or week. wage is defined in section 1 of the Basic Conditions of Employment Act, No. 75 of 1997.
According to the Basic Conditions of Employment Act, wage will include your basic wage or basic salary (excluding Fringe Benefits and Company Contributions).
Commission, Bonus and Overtime does not form part of ordinary hours of work and therefore not included as per the definition of wage.
In a package structure, you can include an allowance if it is in respect of ordinary hours of work.
If wage is split into different lines, all lines that are for ordinary hours of work will be included.
10. What is ETI remuneration (Payroll – Definitions)?
This is the Taxable remuneration as per the 4th Schedule of the Income Tax Act
(Taxable Earnings + Taxable Perks + Taxable Company Contributions).
11. When is wage and remuneration used?
Wage is used to determine if the employee earns at least the minimum wage as qualifying criteria. This is defined on the Basic Company Information Screen.
Remuneration is used to calculate the incentive amount (Taxable Earnings + Taxable Perks + Taxable Company Contributions). This is defined under Definitions and will default as per SDL flags, but can be changed if needed.
12. Will Commission-only earners qualify for the Employee Tax Incentive?
Since commission-only earners do not earn an actual basic wage, it is not possible to compare this with the minimum wage.
13. How do I know what the minimum wage is that the employee must be linked to?
The minimum wage is prescribed by a Bargaining Council Agreement, Collective Agreement or Sectoral Determination. If no wage regulation is applicable it will be a standard R2000.
14. Do I need to use the minimum wage for the industry, or per job specification?
The minimum wage per employee must be loaded; therefore if there is a minimum wage based on job specification, the minimum wage for the job specification will have to be loaded. All employees must be linked to the applicable minimum wage.
It is important that the minimum wage values are updated on the VIP system should these amounts increase as per Bargaining Council Agreement, Collective Agreement or Sectoral Determination.
15. What are SIC codes?
Standard Industrial Classification codes. In practice, the classification is used for providing a continuing flow of information that is indispensable for the monitoring, analysis and evaluation of the performance of an economy over time.
To learn more about SIC codes please click on the following link where you can find the guide:
16. Where can I find a list of the SIC codes?
The list of SIC codes (7th edition) is available on the Stats SA website:
17. How do I know to which SIC code I must be linked?
Please contact SARS or Statistics South Africa.
18. Why do I have to link the SIC codes for both employer and employees?
According to the latest SARS Business Requirements System (BRS) for 2013/2014 tax year annual reconciliation, this is a mandatory requirement. Therefore this is not only an ETI requirement but also a tax certificate requirement.
19. Where do I get the Special Economic Zones?
At the time of publishing this document, the Special Economic Zones have not been released; therefore the field should not be used. Only once this has been published this field must be updated.
20. If an employee is active, but does not receive remuneration in the current month will the incentive still be calculated?
No, there is no remuneration and nothing to calculate the incentive on.
21. Is there a report that shows ETI values per person?
There is an ETI History Report located under the History Tab or there is a new option under IRP5 report which will create an export file together with a report.
22. When will ETI incentive claims not be allowed?
An employer is not tax compliant in the following conditions:
Any outstanding return
Outstanding debt to SARS
23. If the employer is not tax compliant, can the incentive amount be rolled over to the following month?
Yes. The Employer just needs to keep track of the rolled-over amount. Unfortunately the VIP system cannot keep record of the rolled over amount and will have to be done separately on an Excel spreadsheet.
24. What happens if your ETI amount is greater than your PAYE amount for a certain month?
The excess amount can be rolled forward to the following month. The excess amount just needs to be recorded.
25. Is there a limit on how many months the incentive can be carried over for?
No, but the amount to be rolled over is limited every 6 months. The amount exceeding the cap amount can be claimed from SARS from a date still to be announced in a Gazette.
26. How do I calculate the maximum amount that can be rolled over?
The total of the excess amounts that are rolled-over are limited to the number of qualifying Employees in service on either 1 March or 1 September (the current bi- annual tax certificate submission periods), multiplied by R6000. The limit should be calculated at the end of February (or 1 March) and the end of August (or 1 September). The amount exceeding the cap amount, can be claimed from SARS from a date still to be announced in a Gazette.
Please see example below:
|Incentive for the month||Excess carried forward||Incentive amount||Employee s’ tax||Excess|
|Month 1||R 100 000||N/A||R 100 000||R 80 000||R 20 000|
|Month 2||R 120 000||R 20 000||R 140 000||R 130 000||R 10 000|
|Month 3||R 90 000||R 10 000||R 100 000||R 90 000||R 10 000|
|Month 4||R 150 000||R 10 000||R 160 000||R 120 000||R 40 000|
|Month 5||R 110 000||R 40 000||R 150 000||R 120 000||R 30 000|
|Month 6||R 130 000||R 30 000||R 160 000||R 120 000||R 40 000|
Recon period: As at the end of the 6 months the Eligible Employer has 6 qualifying employees in service. On the first day following the 6-month period, the excess must be capped at R6 000 per qualifying employee = R36 000.
|Month 7||R 100 000||R 36 000||R 136 000||R 120 000||R 16 000|
|Month 8||R 120 000||R 16 000||R 136 000||R 130 000||R 6 000|
27. How do I post the ETI amount to my General Ledger?
The user must process a manual journal for the ETI values.
The ETI values calculated by VIP are a theoretical value and not the value claimed from SARS on the EMP201 therefore values cannot be posted directly from the payroll to the GL.
28. Will VIP automatically deduct the incentive amount on the EMP201 report?
No, the tax incentive amount will not automatically be deducted from the PAYE Amount Payable to SARS, because there are unknown variables. There is a separate section at the bottom of the report that will indicate what the Incentive amount is.
29. Did the EMP201 change?
Yes, there is a new field where the ETI amounts can now be entered:
30. Why is the ETI amount not the full ETI amount for my new and terminated employees?
When an employee does not work a full month, the system will calculate a theoretical monthly wage to determine whether the employee is a “qualifying employee”. If the employee qualifies, the system will calculate a monthly equivalent of remuneration, on which the ETI amount will be calculated. The monthly ETI amount will then be pro- rated according to the number of days actually worked.
31. If an employee works for company A for 3 months (January to March) and moves to Company B in April, Company B is an associated person of Company A. How will you calculate the period of employment for the purposes of the incentive amount?
If the employee is employed by an associated person, it will count as service periods employed by the same employer.
The period of employment for the purposes of the incentive in April is 4 and not period 1 because the employee was employed by an associated person.
32. What is an associated person?
Companies which are managed or controlled directly or indirectly by the same persons.
33. If an employee is employed with a passport and work permit, but has no asylum seeker permit, do they still qualify for the incentive?
No. Only RSA 13-digit ID, or asylum seeker permits are acceptable documents.
34. What is an asylum seeker?
He/she is a person who has fled his or her country of origin and is seeking recognition and protection as a refugee in the Republic of South Africa, whose application is still under consideration.
In the case of a negative decision on his application, he has to leave the country voluntarily or will be deported.
- Book a seat at our Employment Tax Incentive Bill seminar.
- Book a group consultation. Click here