Incentivising youth employment: What is the Employment Tax Incentive?

During the delivery of the 2014/15 National Budget to Parliament Finance Minister, Pravin Gordhan said that the youth employment tax incentive recorded 56 000 beneficiaries in its first month.  What is he talking about?

The Employment Tax Incentive is an incentive aimed at encouraging employers to hire young and less experienced work seekers. It came into effect on 1 January 2014.

The reason for the incentive is well known: “Millions of young South Africans are excluded from participating in economic activity, and as a result suffer disproportionately from unemployment, discouragement and economic marginalisation. High youth unemployment means young people are not gaining the skills or experience needed to drive the economy forward. This lack of skills can have long-term adverse effects on the economy. In South Africa the current lack of skills and experience as well as perceptions regarding the restrictiveness of labour regulations make some prospective employers reluctant to hire the youth” (SARS).

There are a number of benefits, but the main one pertains to the fact that it reduces the employers’ cost of hiring young people through a cost-sharing mechanism with government,  allowing employers to reduce the amount of  Pay-As-You-Earn (PAYE) they pay while leaving the wage received by the employee unaffected.  The incentive is currently scheduled to end on 31 December 2016 but its effectiveness will be reviewed to determine whether it should be continued beyond that.

SARS has developed useful resources to introduce employers to the Employment Tax Incentive:

 

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