Adjustments made to the ETI remuneration criteria to allow for the increase in the minimum wage.

The incentive was originally only expected to be implemented until 1 January 2017 but has been extended so that it can be utilised up until 28 February 2029. 

The ETI allows an employer to reduce their monthly employment costs by reducing the amount of the monthly PAYE due to SARS, to the extent that remuneration is being paid to qualifying employees. 

The main criteria for a qualifying employee include: 

The employee needs to be older than 17 and not older than 29 years of age at the end of the month in which the employment tax incentive is claimed; or the employee can be of any age, where an employer is carrying on a trade in a special economic zone;  

The employee needs to hold a South African ID card or be in possession of an asylum seeker permit; and 

The total monthly wages of an employee must not exceed R 6,500 per month. 

For each qualifying employee, an employer is able to claim an ETI deduction for a maximum of 24 months, with the incentive amount being dependent on the employee’s total wages and whether the qualifying employee was employed after inception of the ETI programme on 1 October 2013.   

Currently the ETI calculation formulae is set out as follows: 

Where an employee’s monthly wages are less than R2,000, an incentive at a rate of 75% of the monthly wages will be calculated for the first 12 months and 37.5% for the second 12 months.  

The maximum incentive of R1,500 for the first 12 months applies to wages between R2,000 and R4,500 with an amount of R750 being applicable to the second 12 months. 

For wages between R4,500 to R6,000 for the first 12 months the incentive will be calculated as R1,500 less 75% of R4,500 less the monthly wages, with the formula being amended to an amount of R750 less 37.5% of R4,500 less the monthly wages 

In the National Budget address given by the Minister of Finance on 12 March 2024, it is proposed that with effect from 1 April 2025, the above remuneration bands will be adjusted to compensate for the adjustment in the minimum wage.  The ETI calculation will be adjusted so that employers will be able to claim the incentive at a rate of 60% of wages below R2,500, where such wage minimums are allowed due to existing exemptions.  In addition, the maximum incentive of R1,500 will apply to employees earning between R2,500 and R5,500 per month.  The maximum remuneration ceiling will be increased from R 6,500 to R 7,500. 

It is encouraging to see that this government incentive is still being used by government to encourage employment within South Africa that that is being adjusted to compensate for the changes to the minimum wage, which will hopefully lead to more economic growth at the time as providing skills and employment opportunities to people who may otherwise has remained discouraged and marginalised. 

As a secondary effect to the incentive, an employer is also motivated to remain compliant in all aspects of their tax affairs including the submission of any returns and the payment of outstanding tax debt, as the ETI can only be utilised in the months in which an employer is completely tax compliant. 

 Author:

Sharon MacHutchon, Manager