Tax Relief Measures – Draft DMTR Bill Impacting ETI

Written by:

Pierre Scheepers

Pierre Scheepers

GreatSoft Payroll Product Manager

Changes to the ETI Act

The changes to the ETI formula is valid as of 1 April 2020 and will end 31 July 2020.:

The proposed amendments that impact on payrolls and employers are summarised below.

  1. The formula bands for employees aged 18 to 29 years who have qualified for less than 24 months have been expanded by R750 pm (previously R500), subject to the ‘3-step formula’ requirement.
  2. Two new ‘extended’ age eligibility criteria have been added to the existing qualification rules:
  • Qualifying employees aged 18 to 29, who have completed 24 qualifying months
  • Qualifying employees aged 30 to 65 years of age.
  1. A new formula was provided for the two new categories of qualifying employees that provides for ETI relief for the employer of R750 (Previously R500), for remuneration less than R4 500 pm, tapering down to zero at R6 500.
  2. The effective date of these changes to be 1 April 2020.

As most companies have already processed their payroll by the 23rd of April using the expanded value of R500, a proposal was made to include the additional R250 contribution in to the month of May 2020.

Understanding the calculations of the amended ETI Act

Employees who are in the 1st 12 qualifying cycles (Ages between 18 and 30 and not yet 24 claims)
  • Employees who are in the 1st 12 qualifying cycles now includes a bracket from 0 – 1999. The formula calculation for this is (50% x Monthly ETI Remuneration) + 750-00 NB! Applicable only if a worker of company the below is no longer in place:
    • Exempt from National minimal Wage
    • Where section 3 of the National Minimum wage does not apply
    • Where wage regulating measure does not apply
  • Employees in the 1st 12 Qualifying months of Remuneration where the earning are 2000 – 4999, the amount is fixed on 1750
  • Employees in the 1st 12 Qualifying months of Remuneration where the earning are 4500 – 6499, apply the formula (A-(B x (C – D))
    • A = 1750
    • B = 0.875
    • C = Monthly ETI Remuneration
    • D = 4500
  • Those who earn 6500 and more = 0.00

Employees who are in the 2nd 12 qualifying cycles (Ages between 18 and 30 and not yet 24 claims)
  • Employees who are in the 2nd 12 qualifying cycles now includes a bracket from 0 – 1999. The formula calculation for this is (25% x Monthly ETI Remuneration) + 750-00 NB! Applicable only if a worker or company the below is no longer in place:
    • Exempt from National minimal Wage
    • Where section 3 of the National Minimum wage does not apply
    • Where wage regulating measure does not apply
  • Employees in the 2nd 12 Qualifying months of Remuneration where the earning are 2000 – 4999, the amount is fixed on 1250
  • Employees in the 2nd 12 Qualifying months of Remuneration where the earning are 4500 – 6499, apply the formula (A-(B x (C-D))
    • A = 1250
    • B = 0.625
    • C = Monthly ETI Remuneration
    • D = 4500
  • Those who earn 6500 and more = 0.00

Employees who are older than 29 and younger than 65 or who has already claimed 24 cycles

  • Employee who fall in the above category and who’s ETI remuneration is between 0 – 4499 does get a fixed ETI amount of 750
  • Employees who fall in the above category and who’s ETI remuneration is from 4500 to 6499 apply the following formula A – (Bx(C-D))
    • A = 750
    • B = 0.375
    • C = ETI Remuneration
    • D = 4500

Example 1

Employee Age 23 and earns 1500 for the month and has only 5 ETI claims AND the employee or company is Exempt from section 4 of the Employment Tax Incentive Act

The ETI for this employee = (50% x 1500) + 750 = 1500

If not exempt then ETI = 0-00

Example 2

Employee Age 23 and earns 2500 for the month and has only 5 ETI claims

The ETI for this employee = Fixed at 1750

Example 3

Employee Age 23 and earns 5000 for the month and has only 5 ETI claims

The ETI for this employee : A – ( B x (C – D))

A = 1750

B = 0.875

C = 5000

D = 4500

ETI = 1750 – (0.875 x (5000-4500))

ETI = 1750 – (0.875 x 500)

ETI = 1750 – 437.5

ETI = 1312.50

Example 4

Employee Age 23 and earns 1500 for the month and has claimed ETI 18 times AND the employee or company is Exempt from section 4 of the Employment Tax Incentive Act

The ETI for this employee = (25% x 1500) + 750 = 1125

If not exempt then ETI = 0-00

Example 5

Employee Age 23 and earns 2500 for the month and has only 18 ETI claims

The ETI for this employee = Fixed at 1250

Example 6

Employee Age 23 and earns 5000 for the month and has only 18 ETI claims

The ETI for this employee : A – ( B x (C – D))

A = 1250

B = 0.625

C = 5000

D = 4500

ETI = 1250 – (0.625 x (5000-4500))

ETI = 1250 – (0.625 x 500)

ETI = 1250 – 312.5

ETI = 937.50

Example 7

Employee Age 30 and earns 3000 for the month and has only 18 ETI claims

ETI = Fixed 750

Example 8

Employee Age 30 and earns 5000 for the month and has only 18 ETI claims

The ETI for this employee: A – (B x (C – D))

A = 750

B = 0.375

C = 5000

D = 4500

ETI = 750 – (0.375 x (5000-4500))

ETI = 750 – (0.375 x 500)

ETI = 750 – 187.50

ETI = 562.50

Further Proposed Amendments on the DMTR Bill Impacting ETI as off 1 May 2020

The proposed amendments of the revised DMTR Bill that impact on payrolls and employers are summarised below:

  1. For May, June and July, the remuneration ‘gross-up’ requirement if the hours are less than 160 has been removed (for all age groups). In all cases, the ‘actual’ remuneration paid in the month is used to check against the R6,500 pm remuneration qualifying threshold, and used to calculate the ETI if the employee qualifies.
  2. For April, May, June and July, the default of a minimum wage or R2 000 pm if there is no wage regulating measure has been deleted.
  3. This is not clear from the wording, but it appears that the qualifying requirement that the employee’s start date of employment is on or after 1 October 2013 has been removed, but only for the two extended age groups for April, May, June and July.

For April, May, June and July, the ETI value has been increased from the R500 proposed by the 1 April DMTR Bill to R750 for all age groups (i.e. the ‘normal’ age group, plus the two ‘extended’ age groups).

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