Employment Tax Incentive

Scope of the Draft Legislation

Only private sector employers that are registered for PAYE can benefit from the tax incentive, but the Minister of Finance can include specified public entities if he so wishes. Restricting the incentive to the private sector is logical if one considers that it contributes about 82 per cent of GDP and employs over 70 per cent of those in formal employment outside of agriculture.

Note that a company that only employs individuals who earn below the income threshold is not required to register for PAYE because there is no PAYE to be withheld. These employers will unfortunately be excluded from benefiting from the tax incentive, and consequently will not be motivated to employ young people.

Only young people between the ages of 19 and 29 who have a South African ID and who earn remuneration (as defined by the Fourth Schedule to the Income Tax Act) that is between the minimum wage for that specific sector (or R2000 remuneration per month if there is no minimum wage) and a maximum of R6000 remuneration per month will ‘qualify’ for the incentive.

Further, only those individuals who have been employed on or after 1 October 2013 will qualify for the incentive, and if they qualify in other respects will generate the tax incentive for the employer. The incentive itself can only be calculated for qualifying employees from the effective date of the legislation, which at this stage is proposed to be 1 January 2014. There is no provision for a retrospective calculation of the incentive back to October 2013.

By including youths appointed after 1 October 2013, the legislators are encouraging employers to appoint youths when they need them and not to wait until the incentive kicks in, taking into account that thousands of school leavers will be entering the job market towards the end of the year.

The incentive is not allowed if the young person is related or connected to the employer, and domestic workers are specifically excluded.

Further, to encourage economic activity within Special Economic Zones (SEZ), the same incentive will be available to an employer who conducts his business in one of these zones (still to be specified), with the added advantage that the incentive is not limited to young people but is available in respect of all employees who qualify in terms of the other requirements.

Interestingly, an employee is defined as per the Labour Relations Act (LRA) definition (essentially a natural person who ‘works’ and is paid ‘remuneration’ but excluding independent contractors) and not according to the Fourth Schedule definition, whereas the incentive is calculated on remuneration as defined by the Fourth Schedule.

Using the LRA definition of an employee excludes legal entities and directors earning ‘deemed’ remuneration, but would include casual workers, seasonal workers and fixed term contractors. The position is uncertain for those workers supplied by a labour broker that after three months of service at a client become deemed employees of the client in terms of the near-final amendments to the Labour Relations Act.

via Employment Tax Incentive.

Wouldn’t it be a whole lot easier just to give a percentage extra deduction on wages paid to all new employees employed from a certain date? It could solve so many unintended pitfalls which seem like they are going to snarl up this new fan-dangled scheme – A. Last.

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