How the Youth Employment Subsidy Works

youth-employment-subsidyYou might have heard media reports about the new “youth wage subsidy” that came into effect at the beginning of this year. Is this policy beneficial to business owners, and how can you implement it in your own company? Let’s find out more.

What is the Youth Employment Subsidy?

The subsidy is technically called The Employment Tax Incentive Act – a new law that is supposed to make it easier for companies to hire younger and less experienced employees.

With high youth unemployment and an ageing executive population, South Africa needs to do more to encourage young people to work, and fans of the new law claim that it will do just that. Here’s a brief look at some of the benefits that employers could receive under the new law.

Tax credits for companies that give younger workers a chance

The youth wage subsidy is a tax credit that allows PAYE-registered employers to claim some of the PAYE they would otherwise be paying on behalf of younger salaried workers. The subsidy applies to South African workers aged between 18 and 29, and covers the first two years of employment.

How large is the employer’s benefit?

During the first year, employers can claim:

  • 50% of salaries below R2000 per month
  • R1000 of salaries between R2001 and R4001 per month
  • For salaries between R4001 and R6000: R1000 + ½(monthly salary-4000)

This means that the maximum benefit an employer would receive is R2000 from a salary of R6000 – this represents a 33.3% tax “discount” on a salary of R6000 per month. Salaries above R6000 don’t qualify under the youth wage subsidy.

During the second year of employment:

  • 25% of salaries below R2000 per month
  • R500 of salaries between R2001 and R4001 per month
  • For salaries between R4001 and R6000: R500 + ¼ (monthly salary-4000)

The employer’s benefit during the second year is half that of the first year – in other words, the maximum benefit is now reduced to R1000 on a R6000 monthly salary.

Note: Employers who pay their workers under R2000 a month will need to provide SARS with proof that these salaries fall under a wage regulating measure. Otherwise, the minimum salary that applies to the subsidy is R2000 per month.

Is the scheme worthwhile?

If you’re thinking of hiring a new staff member (SARS won’t allow you to replace an ageing member of staff and claim a youth wage subsidy) the new law may be the perfect opportunity to hire a talented young worker at a discount and train them up over two years or less.

For more information on the youth wage subsidy or any other HR issues, contact the Northwood team today.

2 thoughts on “How the Youth Employment Subsidy Works

  1. what about the youth who are unemployed&never had a chance of employment in an company?only casual day by day??not fair on lowest out there.What About those who Never had an Wages pkt / Bank Cheque??

    1. There are a number of schemes available. One is for unemployed Matriculants, and another for unemployed Graduates. They upper age limit is 29 years old.

      Employed you do not qualify because they already have a job.

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