Business owners who employ young people can now apply for a grant under a new wage incentive
The Employment Tax Incentive Act, signed into law at the end of last year and effective from January 2014, provides for a wage subsidy that aims to increase employment of inexperienced people between 18 and 29 years.
Under the new legislation, employers can claim back up to 50 per cent of the remuneration of employees. Only employers with staff in this age bracket, who earn less that R6 000, qualify for this incentive.
The incentive is open to all employers except government departments, municipalities, public entities and organisations not registered for Pay-As-You-Earn (PAYE) and will be administered by the South African Revenue Service (SARS).
The incentive will best suit business owners who employ staff with entrylevel salaries of between R2 000 and R4 000, because the incentive becomes progressively less as an employee approaches the salary ceiling of R6 000 per month.
A business employing a qualifying employee at R5 800 per month would only be able to claim R100 per month in the first year, whereas a business employing four qualifying staff who each earn R4 000 a month can afford to employ a fifth person for “free” using the incentive to pay for the fifth employee’s salary.
Employers can claim the incentive in respect of qualifying employees for a period of two years. However, the incentive’s value halves in an employee’s second year of employment, and the incentive falls away at the start of the employee’s third year of employment.
Neren Rau, the CEO of the South African Chamber of Commerce and Industry (Sacci), advises business owners to use the incentive to train and up skill staff, not to employ people only for the sake of qualifying for the incentive. “Although the incentive is not a permanent
thing, business owners need to employ these people full-time and not just for the duration of the scheme. “Business owners who did this would lose out on the training, time and money they had invested in these employees, and could possibly lose key staff to competitors.”
He believes that small businesses will benefit most from this incentive scheme. “We are expecting the service and retail sectors to benefit most and hope that manufacturers will also take advantage of this by employing interns,” says Rau.
However, he says it is important to note that this incentive is meant to kickstart employment and not a permanent> incentive.
Article first appeared in Small Business Connect.