South African businesses of all sizes have a great opportunity to help address the country’s growing youth unemployment crisis while benefitting from a tax incentive by taking advantage of the Employment Tax Incentive (ETI).
That’s the word from Rob Cooper, at tax expert and Director of Legislation Updates and Proposed Legislation at Sage VIP Payroll & HR, speaking at the Tax Indaba 2014 held in Sandton from 9 to 13 June. He says that South Africa’s unemployment rate of around 50% among people under 25 poses a threat to the country’s future sustainability and prosperity. By helping youngsters to join the workforce, companies can develop their workforces of the future as well as help alleviate the social instability that arises when there are too many young people without work.
Says Cooper: “This crisis is weighing very heavily on the government’s mind, hence the fast-tracking of the ETI into law during 2013. Now that it is in place, the ETI offers employers some generous incentives for helping to bring the young into the workplace and helping them to develop skills that will make them employable into the future.”
The ETI encourages employers to hire young people by reducing the PAYE that the employer is liable to pay to SARS based on the number of young people employed. This reduces the cost of employment to the employer while leaving the employee’s earnings unaffected.
The Employment Tax Incentive legislation will be in effect for an initial three-year period from January 2014 to December 2016. During this time, all employers in the private sector who are registered for PAYE and have their tax affairs in order can take advantage of the scheme, says Cooper.
Companies can claim the ETI for people they directly employed after 1 October 2013 who meet the following criteria:
- Where employed on or after 1st October 2013
- Are between 18 and 29 years of age.
- Have a RSA ID document or an Asylum Seeker permit.
- Earn more than the minimum wage or R2,000 per month (if no minimum wage) but less than R6,000 remuneration per month.
The tax benefits of the ETI can be generous for employers who use it strategically, says Cooper. For the first 12 (qualifying) months, the monthly value of the ETI is per qualifying employee is:
- 50% of monthly remuneration if less than R2,000.
- R1,000 for monthly remuneration between R2,000 and R4,000.
- R1 000 – (0,5 x (monthly remuneration – R4 000)) from R4 000 upwards.
For the second 12 months, the monthly value of the ETI is:
- 25% of monthly remuneration if less than R2,000 .
- R500 for monthly remuneration from R2,000 up to R4,000.
- R500 – (0,25 x (monthly remuneration – R4,000)) from R4,000 upwards.
“These incentives mean employees have a perfect opportunity to start putting young people into unfilled jobs that they did not urgently need to fill, “says Cooper. “They can bring youngsters on board and start training them up and make them productive while they benefit from the subsidy. They can also benefit by bringing in casuals to boost their productivity.” Companies that employ a qualifying casual for R200 per day for 10 days per month will get a reduction of R1 000 from monthly PAYE for the first 12 months, for example.
“If you are an eligible employer with at least one qualifying employee, a good payroll software package should be able to automatically calculate your ETI amount in respect of all the qualifying employees,” says Cooper. “You then need to declare the total ETI for the month on the new EMP201 form.”
The ETI is just one of the many pieces of legislation and regulation that make it imperative for businesses of all sizes to have an automated payroll solution in place, says Cooper. An automated solution will take care of calculating the complex formulas, generating the relevant compliance reports, and keeping accurate records, sparing the person responsible for the payroll reams of manual paperwork.
Adds Steven Cohen, managing director of Sage Pastel: “It’s also essential to have a robust accounting package that is tightly integrated with your payroll software to keep ahead of SARS regulations and other compliance requirements. The right software will help you to stay up to date with SARS ever-changing requirements.”