President Jacob Zuma has signed the Employment Tax Incentive Act No 26 of 2013, making into law an initiative that will complement government’s measures (as listed in the Youth Employment Accord) to create jobs for young workers and those in special economic zones.
The Act will encourage private employers to employ young workers by providing a tax incentive to employers, with government sharing the costs of such employment for a maximum of two years under certain conditions.
This tax incentive can also be used to provide jobs to the many matriculants and other school leavers who will be entering the labour market.
Soon after the Special Economic Zones Bill is enacted, the incentive will also support employers in zones designated as eligible by the Minister of Finance.
Though not applicable initially, the Minister of Finance may also consider extending the incentive to cover workers in certain approved industries. The incentive aims to share the costs of employment between government and employers and will function by decreasing the amount of pay-as-you-earn (PAYE) tax that is payable to the South African Revenue Service (SARS) for every qualifying employee that is hired.
There will be no change in the wages that the employee receives but the effective cost of hiring the employee will be lower, making it more attractive for firms to increase employment.
Government recognises that no one tool or incentive will be a panacea to solve the unemployment problem; however, the tax incentive has the potential to make a real contribution towards the creation of new and additional jobs.
The Act contains checks and balances that are designed to prevent abuse and ensure that employers do not discriminate against older workers in order to merely access the incentive.
Very importantly, this incentive will allow many unemployed young people to gain work experience and develop their skills, thereby improving their prospects for better employment opportunities.
The incentive is available to all private sector employers in all sectors of the economy who are registered with SARS for PAYE.
Employers can claim the incentive on a sliding scale for any employee between the ages of 18 and 29 hired on or after October 1, 2013, who possesses a South African ID and is receiving a monthly salary that is above the relevant minimum wage and less than R6 000 per month.
If there is no legal minimum wage applicable in a particular sector, the monthly salary must be greater than R2 000.
Domestic workers and employees connected or related to the employer are not eligible. During the first year the value of the incentive will be 50% of the monthly wage up to R2 000.
