Employment Tax Incentive Act

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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

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.

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.

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 [email protected] 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). Excluded Employers:
  • A Local, Provincial or National Government
  • Public Entity (listed in Schedule 2 or 3 to the Public Finance Management Act) Municipal Entity
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 on:  http://www.treasury.gov.za/legislation/pfma/public%20entities/default.aspx How do I know which employees are Qualifying Employees? The employee will qualify if he/she:
  • is between 18-29 years of age
  • is in possession of a SA ID (13 digits), a valid asylum seeker permit or an ID in terms of Section 30 of the Refugees Act
  • is employed on or after 1 October 2013
  • earns 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 R2 000 for a full month (160 employed hours).
The employee will not qualify if he/she:
  • is a domestic worker
  • is a “connected person” to the employer or
  • earns remuneration of R6 000 or more during the month.
What is ETI Actual wage? 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. What calculation should be used to do the Wage Qualifying test?

From March 2015:

  • if a wage regulating measure is applicable, then the monthly wage should be compared to the minimum monthly wage (it is understood that a rate per hour or rate per day comparison is allowed as this is effectively the same as grossing-up the wage).
  • if no wage regulating measure is applicable the monthly wage is calculated in the following way:
  • if the employee is employed for less than 160 hours per month, then a gross-up of the wage should be performed to see how much the wage would have been for 160 hours.
  • if the employee is employed for 160 hours or more, no gross-up of the wage is required.

To simplify the calculation, from March 2015 the test will not be based on the wage rate per month, but by applying a rate per hour comparison:

  • if there is no wage regulating measure, an employee will qualify if the wage rate per hour of the employee is equal to or more than R12.50 (R2 000/160 hours), or
  • the minimum wage rate per hour will apply if there is a wage regulating measure.
What is ETI remuneration? This is the taxable remuneration as per the 4th Schedule of the Income Tax Act (taxable earnings + taxable perks + taxable company contributions). What monthly remuneration should be used to calculate the employment tax incentive amount?

From March 2015:

  • if an employee is employed for 160 hours or more in a month, then it is the actual amount of remuneration paid to the employee in a month (no gross-up).
  • if an employee is employed for less than 160 hours in a month the monthly remuneration is calculated as follows: Remuneration earned / hours employed* x 160.

*’Hours employed’ refers to:

  • contractual normal hours (no overtime hours) in the case of a ‘permanent’ employee for ETI purposes (employee with a standard amount of hours to work in a month).
  • actual total hours worked in the case of a ‘temporary’ employee for ETI purposes (employee without a standard amount of hours to work in a month or an employee who work irregular amount of hours).
  • actual normal hours employed for new and terminated employees.

What is the difference between Permanent and Temporary for ETI purposes? A permanent employee for ETI purposes is an employee with a standard amount of hours to work in a month. A temporary employee for ETI purposes is an employee without a standard amount of hours to work in a month or an employee who work irregular amount of hours. When is wage and remuneration used? Wage is used to determine if the employee earns at least the minimum wage as qualifying criteria.  Remuneration is used to calculate the incentive amount (taxable earnings + taxable perks + taxable company contributions). How is the ETI amount calculated?

Calculation of the monthly ETI amount

 

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 Formula:R1 000 – (0.5 x (Monthly Remuneration           – R4 000)) If remuneration = R6 000, the Incentive = 0 Formula:R500  –  (0.25  x  (Monthly Remuneration  – R4 000))

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.

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 R2 000 for a full month (160 employed hours).

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.

How do I know to which SIC code I must be linked?

Please contact SARS or Statistics South Africa.

Why do I have to link the SIC codes for both employer and employees?

According to the latest SARS Business Requirements System (BRS) for tax year annual reconciliation, this is a mandatory requirement. Therefore this is not only an ETI requirement but also a tax certificate requirement.

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.

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.

When will ETI incentive claims not be allowed?

An employer is not allowed to reduce the PAYE payable in respect of a month if the employer, on the last day of the month,

  • failed to submit any return or
  • has any tax debt outstanding except if
  • an agreement has been concluded for a deferral payment,
  • an agreement has been concluded for compromise of a tax debt,
  • a tax debt has been suspended pending an objection or appeal, or
  • the tax debt is less than R100.

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.

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 up until the end of the reconciliation period (August and February). The excess amount just needs to be recorded.

Is there a limit on the amount that can be claimed? No, the R6 000 limitation per qualifying employee does not apply anymore. Employers will be able to claim the full value of the excess amount. If the employer is tax compliant, the ETI due to the employer will be reimbursed at some stage during the next 6 month cycle. If the employer is not tax compliant at the end of the 6 month cycle, the excess amount will be reimbursed when the employer becomes tax compliant. If the employer fails to be tax compliant within the next six months, the excess amount will be permanently lost. This is effective backdated from 1 January 2014.

How do I calculate the ETI Refund? Please see example below:  


ETI Brought Forward

ETI Calculated

Total ETI Available to be offset

PAYE Liability

ETI Utilised

ETI Carried Forward

PAYE Payable

March

R0

R100 000

R100 000

R120 000

R100 000

R0

R20 000

April

R0

R120 000

R120 000

R80 000

R80 000

R40 000

R0

May

R40 000

R160 000

R200 000

R160 000

R160 000

R40 000

R0

June

R40 000

R90 000

R130 000

R120 000

R120 000

R10 000

R0

July

R10 000

R200 000

R210 000

R190 000

R190 000

R20 000

R0

August

R20 000

R100 000

R120 000

R80 000

R80 000

R40 000

R0

SARS will refund the employer an amount of R40 000 provided the employer is fully tax compliant.

September

R0

R100 000

R100 000

R120 000

R100 000

R0

R20 000

October

R0

R120 000

R120 000

R100 000

R100 000

R20 000

R0

November

R20 000

R150 000

R170 000

R120 000

R120 000

R50 000

R0

December

R50 000

R150 000

R200 000

R120 000

R120 000

R80 000

R0

January 2015

R80 000

R50 000

R130 000

R100 000

R100 000

R30 000

R0

February 2015

R30 000

R100 000

R130 000

R100 000

R100 000

R30 000

R0

SARS will refund the employer an amount of R30 000 provided the employer is fully tax compliant when Feb 2015 Reconciliation documents are submitted successfully with no discrepancies.

March 2015

R0







Did the EMP201 change?

Yes, the EMP201 changed during 2014 and there are new fields where the ETI amounts can now be entered: SARS Appendix

What should the “ETI Brought forward” be on the EMP201 and EMP501 in September and February?

Except for the March 2014 (201403) period, the “ETI Brought Forward” amount for March and September must always be zero. Any “ETI Carried Forward” amount at the end of the reconciliation periods, (August and February) will be refunded to the employer if the employer is tax compliant.

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 employed.

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?

Jan Feb Mrc Apr* May Jun Jul Aug Sept Oct Nov Dec

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. 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. What is an associated person? Companies which are managed or controlled directly or indirectly by the same persons. 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, asylum seeker permits or an ID in terms of Section 30 of the Refugees Act are acceptable documents. 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.