Payroll guide
The Employment Tax Incentive, and whether your payroll handles it properly
ETI can reduce the PAYE you pay over for younger employees. Claiming it correctly depends almost entirely on your payroll software.
The Employment Tax Incentive reduces the PAYE an employer pays over when they employ younger workers. Claiming it correctly is almost entirely a question of whether your payroll software calculates it properly.
What the incentive actually is
The Employment Tax Incentive was introduced to encourage employers to take on young workers with little experience. It works by reducing the total PAYE the employer pays over to SARS, not by changing what the employee is taxed.
That distinction matters. The employee's payslip and tax certificate are unaffected. The benefit sits entirely with the employer, and it is claimed on the monthly EMP201.
Who qualifies
Eligibility turns on the employee's age, on holding a valid South African identity document or an asylum seeker or refugee permit, on when they were first employed by you, and on their monthly remuneration falling below a threshold.
There is also a floor. An employee paid below the applicable minimum wage generally does not qualify, which prevents the incentive being used to justify underpayment. The specific ages, amounts and thresholds are set in legislation and are adjusted, so confirm the current values with SARS rather than working from an older summary.
Why the calculation is easy to get wrong
The value of the claim changes with the employee's remuneration and with how long you have been claiming for them, and it steps down after the first twelve qualifying months. A part month, a mid month start or an employee who moves above the remuneration threshold all change the figure.
That is why this is a software question rather than a spreadsheet question. Payroll that calculates ETI natively tracks the qualifying months per employee and applies the correct band automatically. A manual calculation across twenty employees will drift, and the drift shows up in the reconciliation.
What to ask a payroll provider
Ask whether ETI is calculated automatically and whether the payroll shows its working for each employee, so you can see why a particular figure was claimed. Ask what happens when an employee crosses the remuneration threshold mid year.
Then ask how the value reaches the EMP201, and whether the software produces a report you could hand to SARS if the claim were queried. A claim you cannot explain line by line is a claim you should not be making.
Unclaimed value and the reconciliation
If your PAYE liability in a month is smaller than the incentive you are entitled to, the excess is not simply lost, but the rules around carrying it and about claiming in the reconciliation are specific. Your payroll should handle that rather than leaving you to work it out.
Employers who claim manually often either under claim because it is fiddly, or over claim and have it reversed later with interest. Both are expensive. This is one of the clearest cases where the right software pays for itself.
Keep the evidence of eligibility
A claim rests on the employee's age, their identity document or permit, their start date and their remuneration. Keep those records with the payroll rather than in a personnel file somebody else controls.
If a claim is queried you will be asked to prove eligibility employee by employee. Payroll that stores the supporting detail alongside the calculation makes that answerable rather than alarming.
Common questions
01What is the Employment Tax Incentive?
A reduction in the PAYE an employer pays over to SARS for employing qualifying younger workers. It is claimed on the monthly EMP201 and does not change what the employee is taxed.
02Who qualifies for ETI?
Broadly, employees within a defined age band who hold a valid South African identity document or qualifying permit, who were first employed by you after the scheme began, and whose monthly remuneration falls below a threshold. Confirm the current ages and amounts with SARS.
03Does payroll software calculate ETI automatically?
The established South African payroll products do, and they track qualifying months per employee. Confirm this specifically before buying, because a general international payroll product will usually have no concept of ETI at all.
Editorial note
This guide is general buying guidance and not accounting, legal or tax advice. Amounts and deadlines set by SARS change, so confirm the current figures for your own business before you rely on them.