SA’s employment tax incentive in plain English

INSETA's CEO, Sandra Dunn would like all of the insurance sector employers; and in particular the SMEs to take advantage of the SAn Government's employment incentive.

Youth unemployment in SA - estimated at over 50% - as elsewhere (eg Italy’s youth unemployment is estimated to be a whopping 44%) poses a serious challenge.

In an effort to ameliorate it, government implemented an employee tax incentive programme that kicked off in October 2013. Officially the programme started in January 2014, but employers can claim rebates for qualifying employees who started on or after 1 October 2013.

Sandra Dunn, INSETA’s CEO says, “We would like all of the insurance sector employers; and in particular the SMEs to take advantage of the incentive – it’s the small and medium companies that are managing to create more new jobs.”

"One can try and understand the legislation in plain English, but with anything that requires an expert opinion, employers wishing to claim any rebates under the programme, must consult their accountants, auditors or a tax expert to ensure that they comply fully with the relevant legislation.”

Which employers qualify?

To qualify, a business must be in good standing in terms of the Tax Administration Act, and the tax incentives will be calculated in accordance with formulae and equations as set out in the legislation. This means, among others that businesses must be registered with SARS for pay-as-you-earn (PAYE).

Qualifying employers can only employ ‘qualifying employees’.

Businesses located in any Special Economic Zone or operating in designated industries have also been included as ‘qualifying employers’ where the age restrictions for qualifying employees do not apply.

Nicole Paulsen (Cliffe Dekker Hoffmeyer), explains the following exclusions though:

“An employer who is bound to a sectoral determination or a bargaining counsel agreement will not be eligible to receive the employment tax incentive if that employer does not remunerate that employee in accordance with the minimum wage. Where an employer is not bound by a sectoral determination, it is proposed that a minimum wage of R2000 per month is applied.

“An employer will be disqualified from receiving the incentive where a finding is made by a competent court, the Commission for Conciliation, Mediation and Arbitration (CCMA) or a counsel or private agency that the employer ‘unfairly dismissed’ an old employee in order to hire a new ‘qualifying employee’ and thereby take advantage of the tax benefit. Employers found guilty of an ‘unfair dismissal’ under these circumstances will incur a very onerous penalty of 150% of the value of the incentive that they received for the previous twelve month period and will further be excluded from any future participation in the incentive.

“Lastly, the Minister of Finance may, after consultation with the Minister of Labour, prescribe any conditions by regulation that may be necessary in respect of granting the tax incentive.”

Which employees qualify?

The following are key points to bear in mind:

• Employees who are SAn citizens and whose ages are between 19 and 29 qualify.
• Only employees employed with the current employer (or an associated institution) after 1 October 2013 and before 1 January 2017 qualify.
• Employees must receive a salary that is between the minimum wage for that specific sector and R6000 per month.
• Domestic workers and connected persons to the employer are specifically excluded.
• Employees can be employed for part of a month – the incentive is then pro rated.

How does it work in practice?

The employer will not receive a cash pay out. The rebate amount is calculated based on SARS’s guidelines and deducted from the employer’s normal PAYE returns to SARS. The rebate reduces as the employee’s salary increases and is also less after the first 12 months.

There are three brackets for calculating the rebate:

In the first 12 months the following apply:

• Bracket No 1: employees earning less than R2,000/month, the rebate is 50% of the employees salary

• Bracket No 2: employees earning between R2000 and R4000/month, the rebate is R1,000 per employee

• Bracket No 3: employees earning between R4001 and R6000/month, the rebate is based on a formula

In the subsequent 12 months and beyond the following will apply: 

• Bracket No 1: employees earning less than R2,000/month, the rebate is 25% of the employees salary

• Bracket No 2: employees earning between R2000 and R4000/month, the rebate is R500 per employee

• Bracket No 3: employees earning between R4001 and R6000/month, the rebate is based on a formula

Businesses can apply for a tax directive for qualifying employees by using the IRP3 form and then have the payroll administrator effect the tax rebates as a deduction in accordance with the formulae on a monthly basis, namely employee salary tax less the incentive (PAYE).

If an employer (in the absence of an arrangement with SARS) fails to submit any tax returns or owes a tax debt to SARS on the last day of any month, then the employer will not qualify for the rebate.

According to Paulsen, if in any month the incentive amount exceeds the PAYE due, the amount may be rolled over to the next month. She further explains there is however an excess limit of R6000 per qualifying employee that may be rolled over and that a roll over may also be applied for future use during a period of tax debt or return submission.