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How to align your payroll with the Employment Tax Incentive Bill

The employer will receive an incentive for employing youths, subject to certain conditions, which will be in the form of a reduced PAYE monthly liability. The employer will receive an incentive for employing youths, subject to certain conditions, which will be in the form of a reduced PAYE monthly liability.

South Africa is well known for its high unemployment rates especially amongst the youth. In an attempt to reduce this, Government has proposed the implementation of the Employment Tax Incentive (ETI) scheme to encourage businesses to employ young people.

The Bill was adopted and the proposed implementation date is set as from 1 January 2014. In practical terms it means that the employer will receive an incentive for employing youths, subject to certain conditions, which will be in the form of a reduced PAYE monthly liability.

“The incentive will have financial benefits as it will contribute to an improved cash flow, especially for smaller businesses and entrepreneurs. Companies will be in a better financial position to employ more people and will have more money available for training programmes,” says Ina du Plessis, Director of Research and Development at Sage VIP.

However, it has many technical specifications and requirements, which will significantly impact on companies’ payroll systems and processes. Du Plessis encourages all HR and payroll administrators to ensure they are aware of and understand the detail of the incentive. They should also ensure that their software provider makes provision for the administration of ETI within their payroll and HR software.

According to du Plessis, Sage VIP has, since the Bill was published, made a concerted effort to ensure their payroll and HR systems are up to date with all the requirements. She gives customers the assurance that they have nothing to be concerned about and that Sage VIP will be ETI compliant when it becomes effective.

Yolandi Esterhuizen, Legislation Manager at Sage VIP, continues by highlighting some of the basic principles to understand the concept of ETI.

1. Determine if you are eligible for the incentive as an employer

An eligible employer is a private sector employer registered for PAYE.

2.  Determine which of your employees will allow you to qualify for an incentive (also referred to as qualifying employees.)

The following are some basic steps to follow:

Step 1

Is the employee 18 – 29 years?

No – Continue with Step 2 Yes – Continue with Step 3

Step 2

Is the employee employed in a Special Economic Zone?

No – Do not apply incentive

Yes – Continue with Step 3

Step 3

Is the employee in possession of a SA ID or an Asylum Seeker Permit in terms of the Refugees Act?The Asylum Seeker Permit is a temporary permit which you are given pending a decision on your application for refugee status or for asylum.

No – Do not apply incentive

Yes – Continue with Step 4

Step 4

Does the employee earn equal or more than the minimum wage? The minimum wage is stipulated in the bargaining council rules or the sectoral determination.If the employee is not affiliated to a bargaining council or sectoral determination, the minimum wage will be seen as R2,000 per month.

No – Do not apply incentive

Yes – Continue with Step 5

Step 5

Is the monthly remuneration of the employee more than R6,000?

No – Continue with Step 6

Yes – Do not apply incentive

Step 6

Was the employee employed on or after 1 October 2013?

No – Do not apply incentive

Yes – Continue with Step 7

Step 7

Is the employee a connected person to the employer or a domestic employee?

Yes – Do not apply incentive

No – Calculate the incentive amount

3. Determine the incentive amount

The incentive will be available for a maximum 24-month period per qualifying employee, broken up into a ‘first 12 months’ period and a ‘next 12 months’ period’.

Monthly Remuneration

First 12 months of employment of the qualifying employee

Next 12 months of employment of the qualifying employee

R 0 - R2 000

50% of Monthly Remuneration

25% of Monthly Remuneration

R 2 001 - R4 000

R 1,000

R500

R 4 001 – R6 000

Formula: R1,000 – (0.5 x (Monthly Remuneration – R4,000)

Formula: R500 – (0.25 x (Monthly Remuneration – R4,000)

The incentive must be determined every month by identifying who the qualifying employees are and by doing the above calculation.

Example

Mr. A (qualifying employee) is employed in April 2014. His monthly remuneration is R1,500. Mr. A was employed after 1st October 2013 and April is his first month of employment at this employer.

Because Mr. A earns below R 2,000 a month during the first 12-month period, the incentive amount available to the eligible employer is 50% of R1,500 = R750 for the month of April. This amount will then be deducted from the total PAYE liability of the employer.

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