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Do your employees qualify for ETI? Find out how to do the qualifying employee test

by , 01 April 2015
First of all, the Employment Tax Incentive Act (ETIAct) became effective for all payroll periods as from 1 January 2014. It has been put in place to help you bear the cost of offering gainful employment to the unemployed youth of South Africa. It's also known as the youth wage subsidy. But as an employer, you'll only benefit from the Employment Tax Incentive (ETI) if you have positions you can fill with individuals who meet the criteria specified in the ETI Act.

So do your employees pass the qualifying test? Read on to discover the answer...

ETI: What it is and how it helps you

If you and your employees meet the criteria, you can reduce your monthly PAYE payment to SARS – which is where the benefit of this incentive lies. The ETI is also determined monthly per employee, which is important to note.

But how do you know which of your employees will qualify for the ETI

ETI is aimed at helping unemployed youth find jobs, which gives us some clues as to what type of person will be considered a "qualifying employee".

Pay attention to the fact that ETI is determined per employee as well as per month. We believe this aspect is important since it means that not only do you need to perform the qualifying employee test for every employee at the start of his employment, but also every single month you're claiming an ETI for that particular employee.

If you want to know how the ETIAct defines what a qualifying employee, look under Section 6

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Here is the qualifying employee test:

If you answer yes to all the questions in the test, then your employees (or continue to) qualify (or continue to qualify) for ETI.

1) Is the employee a natural person?
Companies, close corporations, trusts, labour brokers and personal services companies don't qualify.

2) Is the employee a South African citizen or is in possession of a valid asylum seeker permit?
Foreign persons won't qualify unless they have a valid asylum seeker permit.

3) Is the employee older than 18 years, but younger than 29 at the end of the month you're claiming the ETI?
If the employee turns 29 during a month, he'll no longer qualify for the ETI!

4) Is the employee an unconnected person in relation to your business?
Ensure you understand what a connected person is in relation to your business. Family members, either direct or indirect, won't qualify.

5) Is the employee something other than a domestic worker?
Domestic workers are specifically excluded from qualifying, and include maids, household drivers, caretakers, au pairs and gardeners.

6) Is the employee employed for the first time after 1 October 2013?
The employee must be a first time employee. That means you must have never previously employed the employee, even if it was just on a casual basis! If the employee was previously employed, say four years ago, and you re-employ him now, he won't qualify.

7) Do you pay the employee less than R6 000 remuneration per month (gross)?
You can still structure the employee's salary, but ensure the gross remuneration doesn't exceed R6 000. Be careful if the employee receives fringe benefits that you add to his basic remuneration. This could push him over the R6 000 limit.

8) Is the monthly remuneration you pay to the employee more than the minimum wage prescribed to your industry? Or where there's no minimum wage prescribed, at least equal to or more than R2 000 if the employee works a full month, or a prorated minimum if the employee doesn't work every day of a month?

Also rememeber that you  must perform the qualifying employee test every month for all your employees to see if they still qualify for the ETI.

Note that if you claim ETI but your employee's remuneration doesn't meet the minimum requirement, you'll be liable for a penalty of 100% of the total ETI claimed!

Caution: A change in the days rule is likely to be effective from 1 March 2015. "Month" will be replaced with "160 hours", and days will be replaced with "hours".

Please keep in mind that, in the meantime, you should continue to use the day's method to calculate the minimum until SARS makes the 160 hours change to the ETI Act.

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