Introduction

In 2020, Parliament passed the Disaster Management Tax Relief Act, 2020, and the Disaster Management Relief Administration Act, 2020, containing exceptional tax measures which formed part of the fiscal package aimed at assisting taxpayers who experienced cash flow constraints as a result of the COVID-19 pandemic and required national lockdown.

One of the exceptional tax measures included in the above-mentioned Acts was an expansion to the Employment Tax Incentive (ETI). This expansion was provided to assist employers to retain employees, thus reducing the risk of low-income earners losing their employment as a result of the lock-down.

Changes to the ETI ACT

The changes to the ETI formula is valid as of 1 August 2021 and will end 30 November 2021:

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

1. R750 increase to the maximum monthly amount of ETI allowable.
2. 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.
3. 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.
4. 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.
5. The effective date of these changes to be 1 August 2021.
6. Due to the fact that social distancing was likely to result in employees working significantly reduced hours, which would impact the monthly remuneration actually paid, the proposal allowed for the calculation of the ETI claim based on actual remuneration paid in that month where the employee worked less than 160 hours a month (the remuneration paid to the employee did not need to be grossed up)
7. Accelerate ETI reimbursements from twice a year to monthly as a means of getting cash into the hands of tax-compliant employers as soon as possible.
8. As the contractual agreement entered into at the beginning of the employee’s employment with the employer was not altered, the extent of the ETI claimable in instances where the employee was employed for less than 160 hours a month would still be impacted by the hours employed and paid in that month (the incentive claimable would bear the same ratio that the number of hours the employee was remunerated bears to 160 hours – the incentive needed to be grossed down)

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)

1. Employees who are in the 1st 12 qualifying cycles now include a bracket from 0.01 – 1999.99. The formula calculation for this is (87.5% x Monthly ETI Remuneration) NB! Applicable only if a worker of the 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
2. Employees in the 1st 12 Qualifying months of Remuneration where the earning are 2000.00 – 4499.99, the amount is fixed on 1750.00
3. Employees in the 1st 12 Qualifying months of Remuneration where the earning are 4500.00 – 6499.99, apply the formula (A-(B x (C – D))
   – A = 1750.00
   – B = 0.875
   – C = Monthly ETI Remuneration
   – D = 4500.00
4. Those who earn 6500.00 and more = 0.00

Employees who are in the 2nd 12 qualifying cycles (Ages between 18 and 30 and not yet 24 claims)

1.  Employees who are in the 2nd 12 qualifying cycles now include a bracket from 0 – 1999.99. The formula calculation for this is (62.5% x Monthly ETI Remuneration) 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
2. Employees in the 2nd 12 Qualifying months of Remuneration where the earning are 2000.00 – 4499.99, the amount is fixed on 1250.00
3. Employees in the 2nd 12 Qualifying months of Remuneration where the earning are 4500.00 – 6499.99, apply the formula (A-(B x (C-D))
   – A = 1250.00
   – B = 0.625
   – C = Monthly ETI Remuneration
   – D = 4500.00
4. Those who earn 6500.00 and more = 0.00

Employees for who you have exhausted ETI claims according to the existing rules of the 
1st and 2nd qualifying (24 month) cycles, provided the employee is still in your 
employment at the end of the month in respect of which the ETI is claimed

1. Employees who are between the age of 18 and 29 (Inclusive) who were employed prior to 1 October 2013, provided they meet the salary bands and other qualifying criteria or
2. Employees who are between the age of 30 and 65 (inclusive) provided they meet the salary bands and other qualifying criteria
   – Employee who fall in the above category and who’s ETI remuneration is between 0 – 1 999.99 the formula calculation is 37.5 % of Monthly Remuneration
   – ETI Remuneration is between 2000.00 – 4499.99, Fixed ETI amount of 750
   – ETI Remuneration is between 4500.00 – 6499.99 apply formula X = A – (B x (C-D))
      * X = Monthly calculated ETI amount
      * A = 750.00
      * B = 0.375
      * C = Monthly Remuneration
      * D = 4500.00

Note! Those who fall within the above group must update the SARS source code 7005 with a 3 (and not a 0, or 1 or 2 for the period the claim was made), which can only happen if the month code 7006 = 08, 09, 10 or 11. Cannot be 3 in any other period where ETI was calculated