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. Many 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 to hire young work seekers 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 up to 24 qualifying months of their employment with you. The incentive is calculated against a sliding scale based on the employee's monthly wage, and since 1 April 2025 employees earning less than R7,500 a month can qualify. > 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 and must not be government, a public entity listed in Schedule 2 or 3 of the PFMA, or a municipal entity. To receive ETI refunds at the end of each reconciliation period, it must also be tax compliant. 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) - Holding a valid **South African ID, asylum-seeker permit or refugee ID** - Employed at a monthly wage of **less than R7,500** (the limit since 1 April 2025; confirm current figures, as it adjusts periodically), and at least the applicable minimum wage - **Not a domestic worker**, and not a person connected to the employer, such as a relative - Employed and paid through your own payroll (including under a registered learnership), not hosted by you while employed and paid by someone else This last point matters: only the employer that actually employs and pays the young person can claim the ETI. If you host a young person who is employed and paid by a sponsor, you cannot claim for them. Once they join your payroll, 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 qualifying months** per qualifying employee per employer, in two 12-month cycles. If the employee later joins another business, that employer assesses the claim in its own right. ## Three Mistakes That Cost SMMEs the Incentive **Claiming for youth you host but don't employ.** If a sponsor employs and pays the young person, claiming ETI yourself 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. **Missing the claim entirely.** A costly mistake is simply not claiming. If you've employed qualifying young workers and never claimed, note that ETI not claimed by the end of each six-month reconciliation period (August or February) is forfeited. Only the current period can still be corrected, so set it up correctly now. ## What It Means Practically For a small business employing one qualifying young person at R5,000 for a full month, the ETI reduces the PAYE due by **R1,500 a month** in the first 12 qualifying months and **R750 a month** in the next 12, about R27,000 over the two years if every month qualifies. That is enough to materially affect the total cost of the hire. The full rate table and worked examples are in Atlan's [ETI 2026 threshold guide](https://atlan.co.za/news/eti-employment-tax-incentive-2026-threshold-guide). 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 conditi...