Backdated ETI:

SARS has provided a period of time until 1 March 2017 for employers to implement ETI. Until this period, employers were allowed to claim backdated ETI calculated. Please refer to the following link:
https://www.sars.gov.za/FAQs/Pages/2303.aspx

From 1 March 2017 the employer cannot claim backdated claims for any period. The last month available to the employer to make that claim was in the February 2017 EMP201 return. The ETI amounts which the employer did not complete as ETI calculated on the EMP201 despite it being available at that time will be forfeited.

In terms of Section 7 of the ETI Act, the employer must calculate the ETI for each month during which he employs a qualifying employee. This calculated amount (ETI available for employer) must then be completed on the EMP201. If the amount is not completed on the monthly EMP201, it simply means that the employer has a 0.00 calculated ETI amount for that specific month.

Should an employer after the submission of the monthly EMP201, then calculates ETI for any of these backdate months, it will not be allowed by SARS, unless it is in the same reconciliation period (either March to August or September to February).

In order to claim the ETI, the employer must complete the calculated ETI field with the amount of the ETI that he calculated up to that month in the same reconciliation period during the current month in which the EMP201 is completed.

For example:
Sep ETI: 500 (not claimed)
Oct ETI: 500
EMP201 for October will have to reflect R1000 (500 for Sep + 500 for Oct) as calculated.

Section 9(4) of the ETI Act: However, if the ETI falls within the same reconciliation period, e.g. 1 March to 31 August OR 1 September to 28 February, then the employer may claim the backdated calculation in that period in the current month.

Please note that if the employer only applies ETI from September, it will mean that he will not be allowed to claim ETI for the previous interim reconciliation period (e.g. 1 March to 31 August) in terms of the provisions of section 9(4), such amount will be forfeited.

Section 9 of the ETI Act deals with the Roll-over amounts in cases where the ETI was available but could not be claimed due to non-tax compliance or limited PAYE available to off-set the available ETI.

Limitation on claiming the calculated ETI
Section 8 of the Act states that although the employer is allowed to calculate the claimable ETI for a specific month, the employer may not be able to claim such calculated ETI amount if —
• any tax return is outstanding
• any outstanding debt exists on the employer’s account excluding—
o instalment payment agreement;
o procedure for compromise of tax debt;
o payment of debt pending objection or appeal; or
o if the tax debt is less than R100.

Where the above limitation exists on the claiming of the available ETI for the specific month, the employer must still complete the calculated ETI for the specific month in the relevant field on the EMP201 monthly return.

Note: Tax returns and debts relate to all tax types for which the employer is or should register at SARS.

ETI – LEGISLATION BREAKDOWN IN SIMPLE TERMS

5. Calculating the ETI
The calculation of the ETI amount claimable is based on the remuneration for that specific qualifying employee in respect of the specific month for which the remuneration is paid.
When it was determined that the employer is an eligible employer which complies with the wage regulating measure as prescribed AND the employee is a qualifying employee, the employer may calculate the ETI amount in respect of each qualifying employee (section 7).
Note: It is recommended to first determine the “qualifying month count” of each employee, to eliminate employees who already reach the 24-month count.
a) The employer must determine which qualifying month count is applicable for the specific month.
(i) If the employee qualifying month count for the specific month is less than 12, then the first part (sub-section (2) of section 7 will be used to calculate the ETI (table A below).
(ii) If the employee qualifying month count for the specific month is more than 12 but less than 24, then the second part (sub-section (3) of section 7 will be used to calculated ETI (table B below).

Monthly remuneration Table A
(1-12 month count) Table B
(13-24 month count)
< R2 000 75% of “monthly remuneration” 37.5% of “monthly remuneration” R2 000 –

ETI – LEGISLATION BREAKDOWN IN SIMPLE TERMS

Proviso
Due to ETI abuse schemes, a change was made to the section 6 to add the following proviso —
“Provided that the employee is not, in fulfilling the conditions of their employment contract during any month, mainly involved in the activity of studying, unless the employer and employee have entered into a learning programme as defined in section 1 of the Skills Development Act, 1998 (Act No. 97 of 1998), and, in determining the time spent studying in proportion to the total time for which the employee is employed, the time must be based on actual hours spent studying and employed”

Unpacking the Proviso:
“Mainly” is interpreted to mean more than 50%.
“Mainly involved in the activity of studying”, must be measured based on actual hours spent studying and employed. This portion is interpreted as: determining the time spent studying in proportion to the total time for which the employee is employed and must be based on actual hours studying and employed.
This proviso does not apply to learning programmes as defined as stated in the proviso and if the employer and employee have entered into a learning programme as defined, the employer is not required to track the actual hours worked and studying.

ETI – LEGISLATION BREAKDOWN IN SIMPLE TERMS

Age
An employee will qualify for ETI in the month in which he/she turns 18 and will cease to qualify in the month in which he/she turns 30 (unless the SEZ or designated industry is applicable to the employee). The age test for ETI is applied at the last day of the specific month although the payroll may be processes a few days before the last day of the end of the specific month.
Example: Where an employee turns 29 on 31 January, this employee will qualify for January and the following 11 months. However, the employee will not qualify in January the following year during which he/she turns 30.

ETI – LEGISLATION BREAKDOWN IN SIMPLE TERMS

4. Qualifying employee in terms of ETI
The following tests must be satisfied to determine if the specific employee, of the eligible employer who complies with the wage regulating measures as prescribed, is a qualifying employee –
a) Age test:
(i) Is the employee between 17 and 30 (not less than 18 and not more than 29) years old on the last day of the specific month; OR
(ii) Does the employee render service in a special economic zone (SEZ) where a qualifying company carries on trade; OR
(iii) Is the employee employed by an employer in a designated industry
AND
b) Identity document: Do the employee have an RSA identity card/book OR asylum seeker permit OR Refugees identity document
AND
c) Is the employee NOT a connected person to the employer
AND
d) Is the employee not a domestic worker
AND
e) Was the employee employed by the employer or associated employer after 30 September 2013
AND
f) The employer complies with the Wage regulating measure test in respect of the specific employee
AND
g) The employee received remuneration in an amount LESS than R6 500 in respect of the specific month
Note:
• Although f) and g) above is part of the qualifying criteria in section 6, these tests normally eliminate the employee when the provisions of section 4 (wage regulating measure) and section 7 (calculation of ETI) are applied.
• If the employee was employed by an associated employer [see e) above], then the employer must continue with the month count in respect of the qualifying months of the employee at the associated employer. The employer may not restart at 1.

ETI – LEGISLATION BREAKDOWN IN SIMPLE TERMS

3. Wage Regulating measure compliance in terms of ETI:
The following test must be satisfied to determine if the eligible employer comply with the wage regulating measures as prescribed –
a) Is the amount paid to the specific employee NOT lower than the HIGHEST of-
(i) A wage regulating measure (if applicable); AND
(ii) The National Minimum Wage;
OR
b) If the above a)(i) is not applicable (e.g. there is no wage regulating measure AND the employer is exempt from paying the national minimum wage) –
(i) An amount NOT LESS than R2000 if the employee was employed and paid for AT LEAST 160 hours in the specific month.
(ii) An amount NOT LESS than R2000 ÷ 160 x hours employed and paid if the employee was NOT employed and paid for AT LEAST 160 hours in the specific month.

Wage Regulating measure is either a —
• Collective agreement (section 23: Labour Relations Act); or
• Sectoral Determination (section 51: Basic Conditions of Employment Act); or
• Binding Bargaining Council Agreement including extended agreements (section 31: Labour Relations Act).
Hours is the ordinary hours as defined in section 1 of the Basic Conditions of Employment Act. A SARS Private Opinion issued the Payroll Authors Group of SA (PAGSA) state the following:
• Wage is the amount of “money” paid or payable to an employee in respect of ordinary hours of work; if they are shorter, the hours an employee ordinarily works in a day or week. The term “money” means that wage can be an amount paid in cash (i.e. appears on the earning side of the payslip) and does not include payments in kind (e.g. benefits or employer paid contributions).

Section 4 of the ETI Act refers to the “higher of” a wage regulating measure or the National Minimum Wage(NMW). Therefore, if an employee is subject to a wage regulating measure that is lower than the NMW, the NMW must be used as the qualifying criteria.

ETI – LEGISLATION BREAKDOWN IN SIMPLE TERMS

2. Disqualifying employer in terms of ETI:
Where the employer is deemed to have displaced an employee if the resolution of a dispute (whether by agreement, order of court or otherwise) reveals that the dismissal of that the dismissal of that employee constitute an automatically unfair dismissal in terms of section 187(1)(f) of the Labour Relations Act, AND the employer replaces that dismissed employee with an employee in respect of which the employer is eligible to receive the ETI, SARS may impose a penalty in an amount of R30 000 in respect of the employee that is displaced and may disqualified the employer from receiving the ETI by a Gazette notice, after taking certain factors into consideration, such as: number of employees displaced and effect that the disqualification may have on the employees of the employer.

ETI – LEGISLATION BREAKDOWN IN SIMPLE TERMS

1. Eligible employer
The following test must be satisfied to determine if an employer is an eligible employer in terms of ETI –
a) The employer must be registered for PAYE at SARS
b) The employer is NOT a government employer in the national, provincial or local spheres
c) The employer is NOT disqualified from receiving ETI

All three the above criteria must be met to be an eligible employer. If the employer is an eligible employer, then you need to look at whether or not the employer complies with the wage regulating measures in respect of the specific employee.

ETI – LEGISLATION BREAKDOWN IN SIMPLE TERMS

The ETI Act prescribed certain test that an employer must apply in order to determine if ETI can be claimed in respect of a specific employee.

These tests are to determine if ETI can be claimed in respect of a specific employee:
1. Is the employer an eligible employer (section 3)
2. Does the employer comply with a wage regulating measure (section 4)
3. Is the employer disqualified due to displacement (section 5)
4. Is the employee a qualifying employee (section 6)

Only when all the above tests are satisfied may the employer determine the ETI amount claimable in respect of the relevant employee (section 7).