The ETI (Employer Tax Incentive) has now become a big part of many of our client’s Payroll structures in thus reducing their PAYE liabilities on a monthly basis. Some clients have now become heavily reliant on these GREAT PAYE saving opportunities on their monthly EMP201 returns.
This however comes with some headaches as it is an administrative nightmare with companies that has a large staff compliment such as those in hospitality and retail.
With the last EMP501 Submission season we have now seen that SARS is much more likely to flag employers claiming ETI for Audits and requesting multiple Payroll reports and ETI supporting documentation that will be subject to validation and compliance checks of both the Employer and Employees for whom ETI was claimed.
One Major pitfall for some employers have been where they claimed ETI for Employees that are from foreign descent and without valid South African ID Numbers.
Companies with ETI validation errors will also find that their Tax Compliance will be affected by these EMP501 Non-Compliance issues and needs to be resolved ASAP to regain their Tax Compliance Status.
We are busy representing a couple of clients with these SARS audits.
Should you have received similar Audit and Compliance requests from SARS or any related ETI questions. Please feel free to contact us for further assistance or check out our website.
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Below some more information on ETI and the SARS Validation Rules:
ETI VALIDATION RULES
The Pay-As-You-Earn (PAYE) Year End reconciliation closed on 31 May 2018. Some employers may have experienced Employment Tax Incentive (ETI) validation errors when submitting their Employer Reconciliation Declaration (EMP501) to SARS. We have provided guidance further down on how to resolve the recently encountered validation errors.
How to resolve ETI validation errors?
In terms of ETI Act, the following rules are validated by SARS on receipt of the EMP501 reconciliation:
- Qualifying employees:
- The employee is a natural person who works directly for another person and receives remuneration from that other person and must have a valid South African identity document, Refugee identity document or Asylum Seeker Permit.
- The employee is between 18 and 30 years of age. This does not apply if the employee is employed in a Special Economic Zone (SEZ Code = Valid). Note: The age validation must take the month of birth into consideration, e.g. if the employee’s month of birth is April then the employer may only claim ETI from April going forward in the year the employee turns 18 and up to March in the year the employee turns 30.
- The employee receives a monthly remuneration of less than R6000.
- Qualifying period: The employee was employed on or after 1 October 2013.
- Employer not subject to wage regulating measures: The employee’s wage must be at least R2000 per month.
- Employer subject to wage regulating measures: The employee’s wage must not be less than the minimum wage prescribed by the relevant regulating measures.
- The Monthly Calculated ETI amount per qualifying employee is within the prescribed legislated threshold:
The monthly calculated ETI amount per qualifying employee is determined as follows:- For the first twelve months of employment –
| Remuneration | Tax % Rebate | Tax Rebate Amount |
| R0 – R2000 | 50% | R 0 – R999.9 |
| R2001 – R4000 | Fixed | R1000 |
| R4001 – R6000 | Formula X = A –(B x (C-D)) X = tax rebate A = R1000 B = 0,5 C = Monthly Remuneration D = R4000 |
R 0 – R999.9 |
-
- For the For the second twelve months of employment –
| Remuneration | Tax % Rebate | Tax Rebate Amount |
| R0 – R2000 | 25% | R 0 – R499.9 |
| R2001 – R4000 | Fixed | R500 |
| R4001 – R6000 | Formula X = A –(B x (C-D)) X = tax rebate A = R500 B = 0,25 C = Monthly Remuneration D = R4000 |
R 0 – R499.9 |
How to handle ETI validation errors on IRP5/IT3(a) certificates?
If you received a message that one or more of your employees do not qualify for ETI, check the message centre of the channel used to submit the reconciliation for a letter listing the IRP5/IT3(a) certificates that failed the ETI validations.
Please note that you have only 21 days (from the date the letter was issued) to rectify and resubmit the IRP5/IT3(a) certificates. Failure to do so will result in your ETI being recalculated and this may result in penalties and interest being charged on your PAYE account.
Also note that any changes to the ETI on the IRP5/IT3(a) certificates may affect your EMP501 reconciliation. Please check that your EMP501 reconciliation still balances before submitting it to SARS