The Employment Tax Incentive Act came into effect on 1 January 2014. The initial effective period was three years but it was extended to end on 28 February 2019.
The definition of “employee” in the ETI Act has been aligned with the definition of “employee” in the Labour Relations Act because the aim of the ETI is to assist in creating employment opportunities regulated by labour legislation.
Tax Amendment Act changed the calculation method of the ETI. If an employee is employed for less than 160 hours in a month, then he or she is deemed to have worked for a part of a month. Thus his or her remuneration must be grossed-up by using the ratio of the hours employed to 160 hours.
The changes will have no impact for employees who work at least eight hours a day, five days a week since these employees will work 160 hours or more each month. It is only categories such as short time arrangements and mornings-only employment where the employed hours will contractually amount to less than 160 hours a month. In these cases, payroll systems will have to allow the employer to data capture the ‘contracted’ hours for qualifying employees who are employed for less than 160 hours pm.
The biggest challenge lies with temps and casuals, who work when they’re called in because there is work for them to do. In this case, it is debatable whether there is a difference between hours worked and hours employed. One can only assume that the hours employed are the same as the hours worked for that month.
This means that in order to be able to calculate the ETI benefit, the employer will have to record and capture the hours worked by each casual into the payroll every month. Without these hours, the payroll’s ETI calculation will not comply with the law. If this interpretation of the draft amendment is correct, it will mean a significant increase in the employer’s workload for casuals who qualify for the ETI.