The Employment Tax Incentive reduces your PAYE when you hire young people, but many small businesses either don't know it exists or assume it's too complicated to claim. It isn't.
If your small business employs young people — or is considering it — the Employment Tax Incentive (ETI) is worth understanding. It's a legitimate, government-backed mechanism that reduces the amount of PAYE you pay to SARS each month when you employ qualifying young workers. It doesn't require a complicated application process, and it applies to small employers as readily as large ones. Despite this, a significant number of SMMEs either don't know it exists or assume it's designed for corporates. This guide covers: - What the ETI is and how it works - Who qualifies — employer and employee - How it's claimed - Key limits and exclusions ## What the ETI Is The Employment Tax Incentive was introduced to encourage employers — particularly smaller ones — to hire young, first-time workers by reducing the financial risk of bringing on someone without a track record. Rather than paying the full PAYE liability for a qualifying young employee, the employer can offset a portion of it through the ETI. The result is that hiring a young person under qualifying conditions effectively costs you less in PAYE each month for the first two years of their employment with you. The incentive is calculated against a sliding scale based on the employee's monthly wage, and in 2026 the qualifying monthly wage threshold increased to R7,500. > The ETI is not a grant — it's a reduction in what you owe SARS. That makes it straightforward: claim it through your monthly EMP201, and pay less PAYE. ## Who Qualifies — Employer Side To claim the ETI, your business must be registered for PAYE, must not have outstanding tax debt with SARS (or must have an approved arrangement), and must not be a government employer. Most private-sector SMMEs with employees qualify on the employer side. ## Who Qualifies — Employee Side The young person you're employing must be: - Aged **18 to 29** (there are age exceptions for employees in Special Economic Zones — confirm with your payroll provider) - **South African citizen, permanent resident, or refugee** with the relevant documentation - Employed at a monthly wage of **no more than R7,500** (the 2026 threshold — confirm current figures as this adjusts periodically) - **Not a domestic worker or related to the employer** in a way that disqualifies the claim - On a contract of employment — not a placement stipend This last point matters: ETI applies to formal employment, not to hosted youth on stipend-funded placement programmes. When a young person transitions from a hosted placement into permanent employment with your business, that's when ETI becomes relevant. ## How It's Claimed The ETI is claimed through your monthly **EMP201** submission to SARS — the same return you use for PAYE, UIF, and SDL. Your payroll software or payroll provider should be able to calculate the ETI amount and include it in the submission automatically once the qualifying employee's details are correctly set up. The incentive applies for a maximum of **24 months** per qualifying employee per employer, in two 12-month cycles. It cannot be transferred if the employee moves to a different employer. ## Three Mistakes That Cost SMMEs the Incentive **Claiming for hosted youth on stipends.** A placement stipend isn't employment, and claiming ETI against it creates a compliance problem rather than a saving. Wait until the young person is on a proper employment contract with your business. **Messy wage records.** The ETI calculation depends on the employee's monthly remuneration and hours. If your payroll records are informal or inconsistent, the claim becomes hard to support if SARS asks questions — and SARS has been asking more questions about ETI claims in recent years. **Missing the claim entirely.** The most common mistake is simply not claiming. If you've employed qualifying young workers and never claimed, ask your payroll provider what's possible — but know that ETI generally can't be claimed retrospectively beyond tight limits, so setting it up correctly from the first month of employment matters. ## What It Means Practically For a small business employing one qualifying young person at R5,000 per month, the ETI reduces PAYE due by a calculated amount each month for up to two years. Over the life of the incentive, the cumulative saving is real enough to materially affect the total cost of that hire. Where young people exit a hosting programme and your business wants to offer them permanent work, combining the ETI with the reduced hiring risk that comes from already knowing the person — and having seen their work — can make the employment decision considerably easier. This is general information. The ETI rules carry specific conditions and calculation formulas; confirm the current requirements with your payroll provider or compliance adviser before claiming. ## Where Bighearts Africa Comes In Bighearts Africa connects SMMEs to youth hosting programmes that can lead toward permanent employment — and can point you toward the compliance su...