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 end of last year and effective from January 2014, provides for a wage subsidy that seeks to increase employment of inexperienced people between 18 and 29 years.
Under the new legislation, employers can claim back up to 50% 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.
The incentive will best suit business owners who employ staff with entry-level 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 on the commencement of the employee’s third year of employment.
Neil Raymer, the HR director of Labourwise, is impressed by the legislation’s simplicity. He says: “I must compliment the Treasury on the methods it has devised for businesses to claim the incentive.”
The process is that a business that is registered for PAYE identifies the qualifying employees and calculates the incentive amount due. The incentive is then deducted from the business’ PAYE liability, which is due on or before the seventh of every month.
Raymer stresses that South Africa has an unacceptably high unemployment level, especially among young people. This incentive is being used to address the negative effect unemployment is having on the economy.
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.”
Rau says there has been a “hugely positive” response to the scheme by Sacci members, but that Sacci will only have clarity on whether certain implementation issues have been addressed when the department visits the chamber to start training on the scheme in the next few weeks.
Business owners can anticipate a few challenges indirectly resulting from the scheme.
“There might be some management challenges. A person might not know or understand how to manage a younger workforce. Or you could have a case where the business owner expects increased productivity from the younger staff and they could be expecting higher compensation,” says Rau.
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 kick-start employment and not a permanent incentive.