The Employment Tax Incentive Bill

In challenging economic times, it is more important than ever for businesses to manage the costs of doing business. The proposed Employment Tax Incentive Bill (“Bill”), approved by Cabinet and released for public comment in September 2013 is aimed at encouraging employers to give the South African youth their first employment experience, by giving employers an incentive.
The employment tax incentive will operate by decreasing the amount of tax that is owed by an employer, through the pay-as-you-earn (PAYE) system. This incentive can only be claimed, by an “Eligible employer” which, in terms of section 3(a) of the Bill, is defined in broad terms as, someone who is required to apply to be registered for the purposes of employees’ tax by virtue of the Income Tax Act and registered for the purpose of the withholding and payment of employees’ tax. Public sector employers are excluded from receiving this incentive,1 however the Bill grants the Minister of Finance (“Minister”) discretionary powers to allow certain public entities to participate in the employment tax incentive, by notice in the Gazette, and on such conditions as the Minister may prescribe by regulations.2
Employers, will not qualify to receive a tax incentive if the employer does not remunerate that employee in accordance with the minimum wage. Put differently the employer will be disqualified if the employer, pays remuneration in respect of the employee below the minimum wage by determination or agreement.3 Where there exists no determination, or agreement, such an employer does not qualify to receive a tax incentive if the employee is not remunerated in an amount of at least R2000 per month.4
Where it is found that an employer has unfairly dismissed an employee in order to hire a new ‘qualifying employee’ to take advantage of the incentive, the employer will face a penalty and be excluded from receiving the incentive in future. Employers will face a penalty of 150% of the value of the incentive, if it is found that they have ‘unfairly dismissed’ an employee, to employ another person to take advantage of the
1 Section 3(b)(i) of the Bill.
2 Section 3(b)(ii) of the Bill.
3 Section 4(1) of the Bill.
4 Section 4(2) of the Bill.
incentive. These employers, will, in future, be excluded from any participation in the incentive.
A ‘qualifying employee’, in terms of the Bill, is an employee who is in possession of a South African ID document and must be older than 19 years and younger than 30 years of age. Moreover, the employee must not be a connected person to the employer and may not be a domestic worker. The employee, must further not have been employed with the current employer, an associated institution before 1 October 2013, and must not be remunerated more than R6000 per month.5
Determining the amount of the employment tax incentive, for qualifying employees, in the first 12 months of employment of an employee receiving a monthly salary of up to R2000 the value of the incentive will be 50% of the monthly salary.6 This incentive will remain at R1000 for employees with a salary between R2000 to R4000 per month.7

Monthly renumeration in R 1000 1500 2000 2500 3000 3500 4000 4500 5000 6000
Monthly Value of incentive in R 500 750 1000 1000 1000 1000 1000 750 500 0

National Treasury, frequently asked questions, Draft Employment Tax Incentive Bill. available at : http://www.treasury.gov.za/comm_media/press/2013/2013092001%20-%20FAQ.pdf pg. 3

For a qualifying employee in their second 12 months of employment the monthly value of the incentive will be half of the amount described above.8
In the event that a qualifying employee, is employed, and the employee then moves to another employer, the number of months that the employee was employed by the previous employer must be taken into account.9 The value of the tax incentive need not be utilised on a continuous basis, but instead reflects the number of months that the person was employed.
5 Section 6 of the Bill.
6 Section 7(2)(a) of the Bill.
7 Section 7(2)(b) of the Bill.
8 Section 7(3) of the Bill.
9 Section 7(4) of the Bill.
The Bill aims to stimulate demand for young workers, by incentivising their employment to address the youth unemployment crisis in South Africa. However, one criticism levelled at the Bill is the lack of incentive for currently employed young workers. The Public has until 11 October 2013 to comment on the Bill, and it is proposed that the Bill will be introduced on 1 January 2014.