The Youth Employment Tax Incentive (YETI) in South Africa is a government initiative.
Why the Youth Employment Tax Incentive (YETI) is Required in South Africa
YETI is aimed at encouraging businesses to hire young, inexperienced workers. We already know that employers don’t like hiring youth for a range of reasons therefore employers need incentives to do so. The Youth Employment Tax Incentive is one of them.
YETI: Tax Incentive to Stimulate Youth Employment
Here’s how the Youth Employment Tax works:
- Who Qualifies: The incentive targets young employees between the ages of 18 and 29.
- Employer Benefits: Employers who hire eligible young workers can claim a tax incentive. This means they can reduce the amount of tax they owe to the government.
- Duration: The incentive is typically applicable for a specific duration. Employers therefore claim it for a set period after hiring a qualifying young employee.
- Conditions: To qualify, the young employee must meet certain criteria, such as not earning above a specified income threshold.
- Implementation: The incentive is implemented through the tax system. For example, businesses can offset a portion of the tax they owe. This is based on the number of eligible young employees they’ve hired.
The goal of the Youth Employment Tax Incentive is to address youth unemployment by making it more financially attractive for businesses to hire young people. This, in turn, helps young individuals gain work experience and improves their chances of finding more stable employment in the future.
The Expanded Youth Employment Tax Incentive (ETI)
To combat youth unemployment, the South African government, as announced by President Cyril Ramaphosa, has expanded the youth Employment Tax Incentive (ETI). This incentive encourages businesses to hire young and less experienced individuals by reducing the employer’s cost through a cost-sharing mechanism with the government. The ETI, in effect since January 1, 2014, allows employers to claim it and reduce the Pay-As-You-Earn (PAYE) tax payable based on the calculated ETI for qualifying employees.
President Ramaphosa highlighted the positive impact of initiatives like the Presidential Employment Stimulus. For example, it has created over a million work and livelihood opportunities. Various programs, including school assistants, the Social Employment Fund, and the National Youth Service, aim to provide employment and work experience for young people. Additionally, the government encourages businesses to remove work experience requirements for entry-level positions for young people.
Why is there an ETI? Youth Employment Tax Incentive Function
Millions of young South Africans are excluded from participating in economic activity. As a result, they suffer most from unemployment, discouragement and economic marginalization. High youth unemployment means young people are not gaining the skills or experience needed to drive the economy forward. This lack of skills can have long-term negative effects on the economy.
Therefore South African employers now have a great opportunity to boost the employment of young work seekers.
What is the Youth Employment Tax Incentive?
The Youth Employment Tax is an incentive aimed at encouraging employers to hire young work seekers. It was implemented with effect from 1 January 2014.
What are the YETI benefits for employers?
The benefits of the Youth Employment Tax Incentive are:
- It will reduce the employers cost of hiring young people through a cost-sharing mechanism with the government, by allowing you to reduce the amount of Pay-As-You-Earn (PAYE) you pay while leaving the wage received by the employee unaffected.
- For example, employers who are registered for PAYE, and who employ a person for the full month of February 2014 and earn R2000, will get R1 000 off their monthly PAYE liability (provided that the employee is a qualifying employee based on all the other remaining requirements). For more information on how the ETI works, click here.
- Employers will be able to claim the incentive for a 24-qualifying month period for all employees who qualify.
- The incentive amount differs based on the salary paid to each qualifying employee and whether the qualifying employee was employed after the inception of the ETI program on 1 October 2013. ETI may only be claimed for a total of 24 qualifying months.
- This incentive will complement existing government programs with similar objectives e.g. learnership agreements.
- The ETI aims to facilitate the increased employment of young work seekers.
Who qualifies for the Youth Employment Tax Incentive?
- The employer is eligible to claim the Youth Employment Tax Incentive if the employer is–
- registered for Employees’ Tax (PAYE), or must be eligible to register for PAYE (e.g. the employer can’t register just to claim ETI, other registration requirements must be met)
- not in the national, provincial, or local sphere of government
- not a public entity listed in Schedule 2 or 3 of the Public Finance Management Act (other than those public entities designated by the Minister of Finance by Notice in the Gazette)
- nor a municipal entity
- not disqualified by the Minister of Finance due to the displacement of an employee or by not meeting the conditions as may be prescribed by the Minister by regulation.
To work out if you are a qualifying employer click here.
How do Employers determine who is a qualifying Employee?
There is no limit to the number of qualifying employees that an employer can hire.
An individual is a qualifying employee if they–
- Have a valid South African ID, Asylum Seeker permit or an ID issued in terms of the Refugee Act
- Are 18 to 29 years old (please note that the age limit is not applicable if the employee renders services mainly inside a special economic zone (SEZ) to an employer that is operating inside the SEZ.
- Are not a domestic worker nor a “connected person” to the employer
- Were employed by the employer or an associated person to the employer on or after 1 October 2013 and
- Are paid the minimum wage applicable to that employer. When a minimum wage doesn’t apply, they are paid the amount contemplated in the Minimum Wage Act and not more than R6 000 remuneration. If there is no prescribed wage regulating measure or not subject to or exempt from the requirements of the National Minimum Wage Act, a wage of at least R2 000 (where the qualifying employee was employed for 160 hours in a month) must be paid.
Therefore, the value of the ETI the employer may claim depends on the value of the monthly remuneration paid to the qualifying employee. For example, if the employee has worked less than 160 hours in the month, the remuneration amount must be ‘grossed up’ to 160 hours per month to calculate the value of the ETI. The amount can then be calculated and be ‘grossed down’ in the same ratio. See more information here.
Will penalties apply to employers? YETI
Yes, penalties will apply when:
- An employer claims the ETI for an employee who qualifies and earns less than the minimum wage (or less than R2 000 where a minimum wage is not applicable). A penalty equal to 100% of the ETI claimed for that employee will be imposed. This will lead to an underpayment of employee’s tax and possible interest and penalties in terms of the Tax Administration Act.
- An employer is believed to have displaced an employee to employ an employee who qualifies. A penalty of R30 000 will be levied, for each employee displaced.
How long will YETI be available?
The Youth Employment Tax Incentive came into effect on 1 January 2014 and it will end on 28 February 2029.