Red tape stalls employers’ job seeker tax incentive

It may be necessary for the South African Revenue Service (Sars) to review some of the binding conditions related to the Employment Tax Incentive (ETI) that it introduced in 2014 to stimulate employment for job seekers aged 18 to 29 with little work experience.

This would aid in reducing the administrative burden associated with the ETI for the extended period up to February 28 2019.

Through the scheme, an incentive for employers to give this group work is a reduction in PAYE tax, provided that the employer is fully compliant for all registered taxes.

Supporting the ETI programme is a no-brainer, given that the youth unemployment rate is about 52%.

Although the scheme’s effect has been partially positive in seeming to boost employment for young work seekers and providing them with a platform to launch their careers, it appears to have been manipulated by some employers who are claiming the incentive for workers they would have employed in any case, without creating new jobs.

Another concern is that firms’ payroll departments have to contend with multiple issues resulting from a set of guidelines that do not appear to take work and business environment realities into account, as well as payroll systems’ inflexibility to have robust programming that would accommodate the ETI’s prescribed rules.

This is a major reason business has recoiled from implementing the ETI. Ultimately, any noncompliance resulting from this would become payroll’s responsibility.

The difficulty experienced with the lack of clarity about implementing the new (and changing) rules and the slow rate of some payroll systems to program the complex rules has resulted in noncompliance. Manual intervention has also been required by payroll departments to verify the calculations.

For example, company payroll systems have been unable to exclude employees when they turn 29 years and 11 months old, resulting in claims being made for workers who no longer qualify for the scheme.

The value of the remuneration must be based on 160 hours a month, excluding overtime and unpaid hours. This means that, if fewer than 160 hours are worked, the system must “gross up” the remuneration to 160 hours a month to calculate the value of the ETI, which must then be “grossed down” on the same basis.

This means hours worked must be recorded and tracked for the correct claim calculation to be made. The calculation needs to be rules based to avoid manual intervention. This adds complexity to the system programming and, as a result, is often managed manually.

Employers must ensure that they adhere to the qualifying period of a 24-month claim for each individual. The 24 months need not be consecutive. Here, again, it is critical to have systems in place to manage this, because nonadherence will be penalised.

In addition, one of the ETI requirements is that an employer must remain tax compliant for all registered taxes to be able to claim the tax incentive. If, at any stage, the employer is found to be noncompliant, all ETI benefits previously claimed may be reversed.

Interest and penalties are imposed on arrear taxes and rectifying the process can take up to 21 working days because there is no ETI-dedicated contact at Sars. This becomes administratively burdensome.

To avoid this situation, payroll personnel must be proactive and add an extra control function to their already busy schedules. A monthly statement of account must be requested from Sars (or can be obtained through eFiling). This must be reviewed and any abnormal item that is reflected must immediately be raised as a query with Sars and rectified, to ensure that the ETI claim is processed by Sars.

Sars has issued a draft binding general ruling on the ETI Act of 2013, and has invited comments on it to be submitted by July 24.

This clarifies the Act’s definition of remuneration, stating that overtime is excluded from the calculation of remuneration for the 160 hours of work a month. Previously, variable pay was included in the calculation of remuneration.

Although this clarity is welcome, the question is: When implemented, do we recalculate the history based on the new ruling?

Given all of the above, employers are still required to be fully compliant and to ensure incentives are claimed correctly because Sars applies strict measures for how employers use the incentive.

The South African Payroll Association welcomes input from business, so that ideas regarding the general ruling can be submitted.

The lack of clarity and the slow rate of payroll systems to program the complex rules has resulted in noncompliance