Pay less PAYE with ETI when hiring graduates

Pay less PAYE with ETI when hiring graduates

Why is there an ETI?

Millions of young South Africans are excluded from participating in economic activity, and as a result suffer disproportionately from unemployment, discouragement and economic marginalisation. High youth unemployment means young people are not gaining the skills or experience needed to drive the economy forward. This lack of skills can have long-term adverse effects on the economy.

In South Africa the current lack of skills and experience as well as perceptions regarding the restrictiveness of labour regulations make some prospective employers reluctant to hire the youth. As a South African employer, you now have a great opportunity to boost the employment of young work seekers.

What is ETI?

The ETI is an incentive aimed at encouraging employers to hire young work seekers. It was implemented with effect from 1 January 2014. The incentive will be in place until Februarie 2028.

What are the benefits for employers?
  • It will reduce the employers cost of hiring young people through a cost-sharing mechanism with government, by allowing you to reduce the amount of  Pay-As-You-Earn (PAYE) you pay while leaving the wage received by the employee unaffected.

    • For example, employers who are registered for PAYE, and who employ a person for the full month of February and earns R2000, will get R1 000 off their monthly PAYE liability (provided that the employee is a qualifying employee based on all the other remaining requirements). For more information on how the ETI works, click here.

  • Employers will be able to claim the incentive for a 24 month period for all employees who qualify.

  • The incentive amount differs based on the salary paid to each qualifying employee and whether the qualifying employee was employed after the inception of the ETI programme on 1 October 2013. ETI may only be claimed for a total of 24 qualifying months.

  • This incentive will complement existing government programmes with similar objectives e.g. learnership agreements.

  • The aim of the ETI is to facilitate the increased employment of young work seekers.

Who qualifies for ETI?
The employer is eligible to claim the ETI if the employer–
  • Is registered for Employees’ Tax (PAYE), or must be eligible to register for PAYE (e.g. the employer can't register just to claim ETI, other registration requirements must be met)

  • Is not in the national, provincial or local sphere of government

  • Is not a public entity listed in Schedule 2 or 3 of the Public Finance Management Act (other than those public entities designated by the Minister of Finance by Notice in the Gazette)

  • Is not a municipal entity

  • Is not disqualified by the Minister of Finance due to the displacement of an employee or by not meeting the conditions as may be prescribed by the Minister by regulation.

An individual is a qualifying employee if he or she–
  • Has a valid South African ID, Asylum Seeker permit or an ID issued in terms of the Refugee Act

  • Is 18 to 29 years old

  • Is not a domestic worker

  • Is not a “connected person” to the employer

  • Was employed by the employer or an associated person to the employer on or after 1 October 2013 and

  • Is paid the minimum wage applicable to that employer or if a minimum wage doesn't apply, is paid a wage of at least R2 000 (where the qualifying employee was employed for 160 hours in a month) and not more than R6 000 remuneration.

Important: The value of the ETI the employer may claim depends on the value of the monthly remuneration paid to the qualifying employee. If the employee has worked less than 160 hours in the month, the remuneration amount must be ‘grossed up’ to 160 hours per month to calculate the value of the ETI. The amount can then be calculated and be ‘grossed down’ in the same ratio.

Source : SARS

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