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What the Employment Tax Incentive means for your business: Part 1

Rob Cooper

Employment tax incentive

Around 50% of South Africans under 25 and of working age are unemployed. This situation, which has persisted for many years, has dire implications for the country's future unless it's reversed. Will the employment tax incentive – which is part of the recent amendments to the taxation laws – be the answer to this problem?

Numerous international studies show that school leavers who don't find jobs within a couple of years become virtually unemployable and contribute to social instability. This reality has prompted government to put a youth subsidy in place to alleviate the problem - after years of debate and fierce opposition from trade unions.

The employment tax incentive encourages employers to hire young people by reducing the PAYE that they must pay SARS. This reduction is based on the number of young people employed and reduces your cost of employment while leaving the employee's earnings unaffected.

What is the timeframe of the employment tax incentive project?

This new addition to the body of taxation laws will be in effect for an initial three-year period from January 2014 to December 2016. It's likely that the law will be amended during this time to improve its effectiveness, and depending on its success the scheme might be extended beyond the initial three years.

How would you calculate the employment tax incentive in your payroll?

To calculate the employment tax incentive in a particular month, you need to fulfil these two criteria:

1. An eligible employer, and

2. Qualifying employees.

If you're eligible to benefit from the employment tax incentive:

  • Your payroll will use the formulas provided by the taxation laws to calculate an employment tax incentive amount for every qualifying employee at the end of each month and report the employment tax incentive total for the month, and
  • The total employment tax incentive reduces your company's PAYE liability you need to handover to Sars*.

If you don't claim the total employment tax incentive amount, or you can only partially claim it at the end of a month:

  • The unclaimed or excess employment tax incentive amount can be rolled over to the next month.
  • The rollover can be repeated for a maximum of six months, linked to the cycle used for the submission and reconciliation of tax certificates (February and August).

According to the taxation laws changes, Sars will reimburse you if there's an employment tax incentive amount that it owes you at the end of a six-month cycle. At the time I wrote this article, the details of the reimbursement process hadn't yet been made available.

If you aren't tax compliant at the end of a certain month, you won't be allowed to claim the employment tax incentive for that particular month. However, you won't lose it because it's carried over to the next month. Sars doesn't want to allow a company that isn't tax compliant in some areas to reduce their tax.

* You can claim this incentive using the new EMP201 form introduced in January 2014.

Rob Cooper

Rob Cooper is the tax expert and Director of Legislation and Proposed Legislation at Sage HR & Payroll. As one of the company’s founders, he has in-depth understanding of the impact of legislation on the HR and payroll software industry.

Over the last 27 years, his focus has been on diverse legislation that governs the employment and payroll industry. Rob is a founding member and the current chairman of the Payroll Authors Group of South Africa, a body that liases with statutory bodies on behalf of payroll system suppliers.

Rob completed his B.Sc in Computer Science at the University of Pretoria in 1971.