This article provides a broad outline of how the incentive works.
What is ETI?
The Employment Tax Incentive (ETI) is an incentive that was launched by SARS with the aim of encouraging employers to hire young and inexperienced job seekers. It reduces the cost of hiring young people by reducing the amount of PAYE owed by the employer to SARS without affecting the employees’ wages.
You are under no obligation to claim ETI. Therefore, you can choose to simply ignore ETI. If, however, you do claim ETI, it will be a tax-free income for your company even though there will be a slightly heavier compliance burden.
How Long is it Available?
The ETI came into effect on 1 January 2014 and it will end on 28 February 2029.
How Does ETI Work?
Employers who are registered for employees’ tax (PAYE) with SARS must deduct / withhold the amount of employee’s tax that is payable on an employee’s remuneration. If an employer who is eligible for ETI hires a qualifying employee, the employer can deduct the employment tax incentive amount from the total amount of the employees’ tax owed to SARS.
The amount of employees’ tax that is owed by the employee will still be recorded as being paid (that is there will be no shortfall when the employer reconciles at the end of the tax year). The employer merely retains the cash value of the incentive.
Where the ETI calculated is greater than the PAYE calculated, the excess ETI will be carried over to the next month, except at the end of February and August; these are the bi-annual filing periods and any excess ETI is then refunded.