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Understanding which employees qualify for the employment tax incentive: part 2

Rob Cooper

Before the payroll system can calculate the employment tax incentive, there must be an eligible employer who has qualifying employees. But who are eligible employees and qualifying employees?

The concept of an employer is not defined in the Employment Tax Incentive Act. However an 'eligible employer' is an entity:

1. In the private sector, and

2. That is registered for PAYE.

Before dealing with the concept of a 'qualifying' employee, we must first know who the Employment Tax Incentive Act defines as employees:

  • Employees are natural people who:

- Work directly for another person,

- Are paid remuneration by another person, and

- Are not independent contractors.

Who would be classified as 'employees' under the Employment Tax Incentive Act?

1. Only natural persons (individuals) can be employment tax incentive employees. Judicial persons - such as personal service providers that are fourth schedule* employees – can't be employees in terms of this act.

2. Only individuals who work "directly" for the employer are employment tax incentive employees.

How can 'directly' be interpreted?
The word 'directly' can be interpreted to mean that a written or verbal employment contract is in place between the employer and the employee, and that the remuneration for the services rendered is paid directly, by the employer to the employee.

This excludes:

  • Learners, in terms of a learnership agreement, who are not employees, and
  • Workers supplied to a company by a labour broker.

The labour broker itself is eligible for the employment tax incentive for its own employees.

Finally, 'casual' or 'temporary' workers are not excluded as employment tax incentive employees.

Employers may not claim the employment tax incentive for independent contractors, even when they're deemed to be fourth schedule employees.

5 Categories of employment tax incentive employees

The following categories of fourth schedule employees are employees in terms of the Employment Tax Incentive Act:

1. Permanent employees,

2. Non-permanent employees ('casuals' or 'temps'),

3. Seasonal workers,

4. Fixed-term contractors, and

5. Learners in terms of a learnership agreement (those who are employees).

Which employees qualify for the employment tax incentive?

Of the five categories of employees detailed above, only those that qualify in terms of the criteria specified in the act will generate a tax incentive benefit for the employer. In simple terms, employees must meet all the following criteria to qualify for the incentive:

  • Employed on or after 1 October 2013,
  • No less than 18 and no more than 29 years old in the month the employment tax incentive is claimed,
  • Have a South African ID or an asylum-seeker permit,
  • Paid a wage that that is not less than the minimum wage for that sector (or R2 000 if there is no minimum wage), and
  • Paid remuneration that is less than R6 000 per month.

The employee doesn't qualify for the incentive if he is a 'connected person' to the employer or is a domestic worker. Casuals, as long as they qualify according to the above criteria, are qualifying employees and can generate an employment tax incentive for the employer.

Only employees employed after 1 October 2013 qualify

This rule ensures that the employment tax incentive doesn't apply to every employee who qualifies in all other respects, but only to new engagements. This underlines the purpose of the incentive: to assist employers financially to employ youngsters over and above their normal hiring requirements.

Note that if an employee was employed before October 2013, then left, only to return to work for the same employer after 1 October 2013, then this employee will qualify for the incentive.

* An employer is defined by the fourth schedule of the Income Tax Act as any person who pays, or is liable to pay, any person (natural or legal) any amount by way of remuneration.

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.