Employment Tax Incentive encourages career development for South African youth
Lower levels of education and being situated in areas with limited access to adequate infrastructure and services continually stifle South African youth’s social mobility and delay their entrance into the job market. The government’s Employment Tax Incentive (ETI) initiative, implemented on 1 January 2014, aims to encourage employers to hire young, inexperienced job seekers. Through a cost-sharing mechanism with government, it aimed to reduce the cost of hiring and upskilling youth.
Youth employment is crucial for nurturing career development
The 2016 Q4 Quarterly Labour Force Survey revealed that 50.9% of the 2.7 million youth (between the ages of 15 and 24) are unemployed. With more and more young people struggling to enter the labour force, they miss out on gaining experience and skills that are crucial for career development. Research consultant Motlalepula Mmesi concurs, suggesting: “Young people in employment gain the soft-skills – confidence, discipline, work ethic, accountability, interpersonal skills – necessary to navigate the challenges of the modern job market.”
Employment Tax Incentive is part of the bigger plan
The tax incentive that reduces Pay As You Earn (PAYE) and leaves the employee’s wages unaffected is congruous with the SA government’s National Development Plan 2030–a long-term strategy to eliminate poverty and reduce inequality by 2030. “South Africa can realise these goals by drawing on the energies of its people, growing an inclusive economy, building capabilities, enhancing the capacity of the state, and promoting leadership and partnerships throughout society,” reads the government’s official website.
The benefits of Employment Tax Incentive
Employer
PAYE registered
- immediate cash benefit
- decreased cost of employment
- enhanced capacity: employees can afford to employ more workers
Employee
| South African ID 18-29 |
Employed since 1 Oct 2013 Earns less than R6 000 per month |
- employment: encourages employers to hire young, unskilled labour
- career development: work experience and upskilling
- wages unaffected and labour law protection
Economy
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Who qualifies for Employment Tax Incentive?
Private businesses that are registered for Employee’s Tax (PAYE) or are eligible to register for PAYE qualify for ETI. There is no limit to the number of qualifying employees that a company could employ but annual ETI claims have been capped at R20 million per employer annually and R 1000 per employee monthly since 1 March 2017.
When does an employee qualify for Employment Tax Incentive?
| 18 - 29 years old
|
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| They have a South African ID, a valid asylum seeker permit or an ID in terms of Section 30 of the Refugees Act. | |
| Employed on or after 1 October 2013. |
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| Earn at least the minimum wage according to the Bargaining Council, Collective Agreement or Sectoral Determination. When no wage regulating measure is applicable, they should earn at least R2 000 per month (160 employed hours). |
When are employees ineligible?
| Domestic workers | |
| “Connected person” to the employer | |
| Monthly remuneration of R6 000 or more. |
More than 50 000 organisations took up the employment tax incentive between 1 January 2014 and 31 January 2017. A year and a half into implementation, about R3.9 billion was paid on claims. “The incentive has had modest positive effects on the growth of youth employment in participating firms, and no notable negative outcomes. The incentive has been extended until 2019 to allow for further evaluation,” according to National Treasury latest 2017 Budget Review.
Companies that qualify for this employment tax incentive are ones that have committed to employing and upskilling young, inexperienced job seekers. Formulas are sometimes difficult to implement and ETI increases a business’ administrative overhead, requiring close management to avoid penalties. FCS Precision Payroll’s Director Brenchia van den Berg, who’s experienced in Employment Tax Incentive management helps businesses enjoy the financial gains of uplifting youth and moving the economy forward.
Related: How Employment Tax Incentive Works