ETI penalties: low pay and displaced workers
The penalties SARS applies when a South African employer claims ETI for staff paid under the minimum wage, or displaces workers to make a claim.
By Achekam · · 5 min read · For Running a business businesses in South Africa
The Employment Tax Incentive is meant to make it cheaper to give young South Africans their first jobs. It reduces the PAYE an employer pays over, month by month, for each qualifying employee. Used as intended, it is one of the few tax rules that puts money back into a small business.
The law also anticipates two ways it could be abused: hiring young staff cheaply below the legal wage floor, and pushing existing workers out to make room for people who attract the incentive. SARS's penalties for both are severe, and both can be triggered by carelessness as much as by design. This article explains each one, how a non-compliant tax status cuts off the benefit, and the checks to make before you claim.
Paying below the minimum wage: the whole claim comes back
SARS says an employer that claims ETI for an employee paid less than the applicable minimum wage faces a penalty equal to the full amount of ETI claimed for that employee (SARS puts it at 100%). Where no minimum wage applies, the benchmark SARS gives is R2 500.
The penalty is measured against the incentive claimed, not against the wage shortfall. So an employer that underpays a qualifying employee and claims the incentive for them can end up repaying everything it gained from that employee under the scheme. There is no partial credit for months where pay was close to the floor.
The floor itself is set by the national minimum wage. The Department of Employment and Labour says all workers, including farm and domestic workers, must earn at least R30,23 per hour under the National Minimum Wage applicable from 1 March 2026. That is the figure at the time of writing; the rate changes, so confirm it each year before your first claim under the new rate. What the minimum wage covers and how to measure pay against it is set out in the national minimum wage from 1 March 2026.
Where underpayment creeps in
- Hourly staff on short weeks. A worker on a low hourly rate can fall below the floor once deductions for unpaid time are made, even where the monthly figure looks reasonable.
- An old rate left in place. A rate that met last year's minimum may not meet this year's.
- Pay that is not wages. Items the minimum wage calculation excludes do not lift a worker over the floor, however generous they look on the payslip.
Displacing a worker: a fixed penalty per person
SARS says an employer found to have displaced an employee in order to employ an ETI-qualifying employee is levied a penalty of R30 000 for each employee displaced.
This is a fixed amount for each person, not a share of the incentive. It does not matter how little incentive the replacement attracted. Replacing an older worker with a younger one to qualify for the incentive is exactly what this penalty targets.
Most employers will never come near this rule deliberately. The risk lies in restructuring that happens to coincide with new young hires. If you are reducing a role and recruiting at the same time, record the business reasons for the decision when you make it, and take advice before you claim the incentive for the new people.
Non-compliant status switches the benefit off
Two further rules can take the incentive away without any penalty being raised.
SARS says that when an original EMP201 is requested, its system checks the employer's tax compliance status, and a non-compliant employer cannot offset ETI against its PAYE liability. SARS also says employers with unused ETI forfeit it if they do not submit their reconciliation or have a non-compliant status.
So an outstanding VAT return or an unpaid assessment elsewhere in the business can stop the incentive working on payroll. Keep your status compliant across all taxes, not just PAYE.
SARS sets out the incentive's conditions, its amounts and these penalties on its Employment Tax Incentive page, which is the page to check for current figures before each tax year.
A check before every claim
Before an EMP201 with an incentive line is filed, run through this list for each employee on it:
- Rate against the floor. Is their hourly rate, worked out from what they were actually paid for the hours they actually worked, at or above the current national minimum wage?
- Hours and short time. Did anything in the month, such as unpaid leave or short shifts, change what they earned per hour?
- Who left. Did anyone leave the business recently, and could their departure be linked to this hire?
- Status. Is the business's tax compliance status currently compliant?
- Qualification. Does the employee meet all of SARS's conditions, not just the age range? See ETI conditions beyond age.
Why Achekam claims nothing until you enter the minimum wage
Achekam calculates the Employment Tax Incentive per qualifying employee per month for an employer that chooses to claim it, and it refuses months before April 2025. The incentive is worked out once the business enters that year's minimum wage per hour on the tax table. Without that figure, nothing is claimed.
That design is intentional. The minimum wage is the line that separates a valid claim from a penalty of the whole incentive, and Achekam does not guess it. A person has to look up the current rate and type it in, which is also the moment to ask whether every employee on the incentive is paid at least that much.
Whether a departure counts as displacement, and whether your tax compliance status is in order, remain the employer's judgement and the employer's checks.
Keep the claim clean
Enter the current minimum wage on the tax table before the first run of the new rate, check each claimed employee's effective hourly pay against it, and keep a written record of why people left whenever new young staff join. An incentive claimed on that footing is one you can defend.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
