Employment Tax Incentive (ETI)

Employment Tax Incentive (ETI)

Payroll / eTorQue, Tax

Since January 2014 we have had the Employment Tax Incentive in operation, and many companies have utilised this benefit by employing first time workers. There have been a few challenges with this act regarding how to implement it correctly. In the draft Taxation Laws Amendment Bill of 2014 the ETI was amended in some ways in an attempt to make this act more understandable and easier to implement.

SARS also published a few statements recently to assist in the understanding of certain definitions regarding the ETI.

The first of these statements deals with the qualifying age. The ETI act states in Section 6(a)(i) the following:

“6. An employee is a qualifying employee if the employee:
(a) (i) is not less than 18 years old and not more than 29 years old at the end of any month in respect of which the employment tax incentive is claimed;”

This has caused some confusion on the interpretation of the age qualification. Employers have been interpreting this from a number of different viewpoints. SARS has therefore issued the following clarification:

“With regards to the age requirement under section 6(a)(i) of the ETI Act, an employee will qualify in the month in which they turn 18 and will cease to qualify in the month in which they turn 30.”

With this clarification it can now be seen that any employee who turns 18 years of age in a particular month will only qualify from that month onwards and will no longer qualify in the month that the employee turns 30 years of age.

An employee is 17 years of age and earns R3 500 per month. On the 25th June 2014 the employee will turn 18 years of age. This employee will qualify for the ETI from June 2014 onwards.

Another employee is 29 years of age and earns R5 500 per month. On the 8th September 2014 the employee will turn 30 years of age. This employee did qualify up to and including August 2014 and will no longer qualify from September 2014 onwards.

Some employers are also still in the dark about the “roll over” amount when claiming the ETI on their monthly EMP201’s. The ETI act states that should there not be enough PAYE on the EMP201 to withhold the ETI, then the amount may be rolled over to the next month, up to a maximum of six months and up to a limit of R6 000 per qualifying employee. At the end of the six months, SARS would then reimburse the employer after evaluating if the employer is tax compliant. This re-imbursement can take place over the next six month period, should the employer not be tax compliant when the re-imbursement is due. If the employer still fails to become compliant in this period, then the amount will be forfeited.

The Taxation Laws Amendment Bill (TLAB) stated that the re-imbursement methods will be announced in the 4th quarter of 2014. SARS did issue the following statement recently regarding this:

“The refund process is expected to be introduced in the last quarter of 2014 and a final pay-out date will be announced soon.

Important facts about refunds:

  • ETI not used at 31 August 2014
    • Is the “ETI not Utilised” amount on the August (201408) Employer Reconciliation Declaration (EMP501).
    • This amount won’t be allowed to be carried forward as the “ETI Brought Forward” amount on the September (201409) Monthly Employer Declaration (EMP201).
    • The “ETI Brought Forward” amount on the September (201409) EMP201 must be zero.

Top Tip: This amount, “ETI not Utilised”, will be ring-fenced for refunding purposes, once the refund process is implemented.

  • ETI not used at 28 February 2014
    • Any amount of ETI not used to reduce the Employees’ Tax amount payable at 28 February 2014 could be included as an ETI carried forward amount.
    • This amount could be included in the ETI brought forward amount on the March 2014 (201403) EMP201.
    • This is the only time a rollover amount will be carried forward to the next reconciliation period.
    • This was necessary as no refund will be paid for an ETI carry forward amount at the end of February 2014.

Top Tip: Where the ETI amount not used at 28 February 2014 was included in the ETI brought forward amount on the EMP201 for March to August 2014 and was not used in full to reduce the Employees’ Tax amount payable over these months, the amount will be included in the “ETI Not Utilised” amount at 31 August 2014. This amount will be considered for refund purposes, once implemented.”

It is imperative that the “ETI Amount not Used” must be declared in the interim period submissions so that when the actual date for the re-imbursement is announced, the employers will be ready for this.

The TLAB deals with a further area of concern in the ETI. This item will be in force from 1 March 2015.

This amendment is to deal with the “gross up” calculation for an employee who only works for a part of a month. The amendment basically states:

  • Grossing up is only required for employees not employed for a full month.
  • Any employee who works less than 160 hours in a month must be grossed up to the 160 hours for the month.
  • Employees who work for more than 160 hours must use the actual remuneration earned for the month.
  • Employees who work only a part of a month, but who are employed for the month as per their contract (i.e. those who are employed for the month but only work 2/3/5/6 etc. days in the month, or mornings only, or 6 weeks working then 2 weeks off) do not have to be grossed up as their remuneration is for the full month.

The new amendment states the following:

“If an Employer employs a qualifying employee for less than 160 hours in a month, the employment tax incentive to be received in respect of that month in respect of that qualifying employee must be an amount that bears to the total amount calculated in terms of subsection (2) or (3) the same ratio as the number of hours that the qualifying employee was employed by the employer in that months bears to the number 160.”

This deal with hours employed and not hours worked that must be grossed up to the 160 hours. This means:

  • For every employee that has been employed for less than 160 hours p/m a “gross up” calculation will have to be done;
  • And that contractual hours (not actual hours) are captured and available in the payroll to do the required calculation (accurately!).

For casual employees (fluctuating hours) the Employer will have to capture hours worked every month in order to “gross up” correctly, which will be an admin burden.