Hiring young workers in South Africa can save your business thousands of rands each year. The Employment Tax Incentive (ETI) is a government programme designed to encourage employers to hire young, less experienced job seekers by reducing the cost of employment. If you're already paying PAYE, you may be leaving money on the table by not claiming ETI.
What Is the Employment Tax Incentive?
The Employment Tax Incentive (ETI) is a government incentive introduced in January 2014 to tackle South Africa's youth unemployment crisis. It encourages employers to hire workers aged 18 to 29 years old by allowing them to reduce their monthly PAYE payments to SARS.
The incentive doesn't reduce the employee's salary or tax — instead, it directly reduces the amount of PAYE the employer must pay over to SARS. In effect, the government subsidises a portion of the cost of employing young workers.
Originally set to expire after a few years, the ETI has been extended multiple times due to the ongoing youth unemployment challenge. It is currently available until 28 February 2029.
Key point: The ETI reduces your PAYE liability — it does not affect the employee's salary or their tax obligations. It's a direct saving for the employer.
Who Qualifies for ETI?
Both the employer and the employee must meet specific criteria for the incentive to apply.
Employer Requirements
- Must be registered for PAYE with SARS
- Must not be in the national, provincial, or local government sphere
- Must be tax compliant — no outstanding tax debts or returns
- Must not have been disqualified by the Minister of Finance for displacing existing employees
Employee Requirements
- Must be between 18 and 29 years old at the time the incentive is claimed
- Must have a valid South African ID number or an asylum seeker permit
- Must not be a domestic worker
- Must not earn less than the applicable minimum wage
- Must be a new hire — the employer cannot displace existing employees to claim the incentive
- Must not be a connected person in relation to the employer (e.g., a relative or shareholder)
Important: The employee's monthly wage must be between R2,000 and R6,500 for the employer to receive the maximum ETI benefit. Employees earning above R6,500 do not qualify for the incentive.
How Much Can You Claim?
The ETI amount depends on the employee's monthly wage and how long they have been employed. The incentive is available for the first 24 months of employment only, split into two 12-month periods with different claim amounts.
First 12 Months of Employment
| Monthly Wage | ETI Amount |
|---|---|
| R2,000 — R4,500 | 50% of monthly wage |
| R4,500 — R6,500 | R2,250 — (0.75 x (wage — R4,500)) |
Second 12 Months of Employment (Months 13–24)
| Monthly Wage | ETI Amount |
|---|---|
| R2,000 — R4,500 | 25% of monthly wage |
| R4,500 — R6,500 | R1,125 — (0.375 x (wage — R4,500)) |
After 24 months of employment, no further ETI may be claimed for that employee.
How to Claim ETI
The ETI is claimed on the monthly EMP201 return submitted to SARS via eFiling. When you complete the EMP201, there is a dedicated field for the ETI amount. The incentive directly reduces your PAYE liability for that month.
- Calculate the ETI for each qualifying employee
- Total all ETI amounts for the month
- Enter the total on your EMP201 return
- Pay the reduced PAYE amount to SARS
If the ETI amount exceeds your total PAYE liability for the month, the excess is carried forward to the next month. The ETI cannot generate a cash refund directly — it can only reduce PAYE that is owed.
Use our PAYE calculator to work out your monthly PAYE liability before applying the ETI reduction.
ETI Calculation Example
Let's walk through a practical example to see the real savings.
Scenario: You hire a 24-year-old employee at a monthly salary of R5,000.
Months 1–12 (First Year)
The wage falls in the R4,500–R6,500 bracket, so we use the decreasing formula:
ETI = R2,250 — (0.75 x (R5,000 — R4,500))
ETI = R2,250 — (0.75 x R500)
ETI = R2,250 — R375
ETI = R1,875 per month
Annual saving in Year 1: R1,875 x 12 = R22,500
Months 13–24 (Second Year)
In the second 12 months, the formula yields half the first-year amount:
ETI = R1,125 — (0.375 x (R5,000 — R4,500))
ETI = R1,125 — (0.375 x R500)
ETI = R1,125 — R187.50
ETI = R937.50 per month
Annual saving in Year 2: R937.50 x 12 = R11,250
Total ETI saving over 24 months: R22,500 + R11,250 = R33,750 — for a single qualifying employee earning R5,000 per month. If you hire multiple qualifying employees, the savings multiply accordingly.
Common ETI Mistakes to Avoid
- Claiming for employees over 29 — the employee must be 18–29 at the time of the claim. Once they turn 30, you can no longer claim ETI for them, even if they were hired at 28.
- Claiming for rehired existing employees — the ETI is meant for new job creation. Firing and rehiring employees to claim the incentive is not allowed and can result in disqualification.
- Not keeping proper records — you must maintain records of each qualifying employee's ID, date of birth, start date, and monthly wage. SARS may audit your ETI claims.
- Forgetting to claim on the EMP201 — the ETI is not applied automatically. You must actively claim it each month on your EMP201 return. Missed months cannot be claimed retrospectively beyond the current reconciliation period.
- Not checking tax compliance — if your business has outstanding SARS returns or debts, you are disqualified from claiming ETI until compliance is restored.
Is ETI Worth It?
Absolutely. For businesses that are hiring young workers, the ETI provides a meaningful reduction in employment costs at no expense to the employee. Here's a summary of the potential savings:
| Period | Maximum ETI per Employee per Month | Maximum Annual Saving |
|---|---|---|
| First 12 months | R2,250 | R27,000 |
| Second 12 months | R1,125 | R13,500 |
| Total over 24 months | R40,500 (at R4,500 wage) |
At the maximum benefit level, you can save up to R2,250 per month per qualifying employee in the first year. Over 24 months, that's up to R54,000 per employee (for employees earning between R2,000 and R4,500 where the 50%/25% formula applies at its peak). Even for employees in the higher wage bracket, the savings are substantial — as shown in our R5,000/month example above, you'd still save R33,750 over two years.
If you're running payroll, make sure you're tracking your ETI-eligible employees and claiming every month. Use our cost-to-company calculator to understand the full employment cost, and our PAYE calculator to see exactly how much PAYE you owe before and after the ETI reduction.
Ready to streamline your payroll? Our free payslip generator calculates PAYE, UIF, and SDL automatically — so you can focus on growing your team and claiming every incentive you're entitled to.