The Employment Tax Incentive is one of the few genuinely useful things in South African payroll tax: hire a young, lower-earning employee and you reduce the PAYE you pay over each month. It has also been widely abused, and SARS has spent the last few years auditing it hard. On 27 July 2026 it published Interpretation Note 145, dealing with the meaning of "employee" in the ETI Act — and the message for employers is uncomfortable but simple. Having the paperwork in order is no longer enough.
What Interpretation Note 145 actually covers
It's worth being precise, because the note is narrower than the headlines suggest. Interpretation Note 145 deals specifically with composite arrangements involving learning institutions — the structures where a learning institution, a business and an individual are tied together for 12 or 24 months, the business pays a training fee to the institution, and the contracts describe that fee as the individual's basic remuneration.
So if you employ your staff directly and they come to work for you, the note isn't aimed at you. But it should still be read carefully, because of what it reveals about how SARS is thinking. It sits inside a much broader campaign to strip out ETI claims where the individual never really worked for the employer claiming the incentive.
The pattern SARS keeps finding is not sloppy paperwork — it's immaculate paperwork. Contracts signed, ages inside 18 to 29, remuneration under the threshold, everything reconciling on the EMP501. And an individual who, on inspection, performed no actual work for the business claiming the money.
Why "we have the contracts" is no longer a defence
The ETI Act requires an "employee" — a natural person who works for the employer and is remunerated by that employer. SARS's position is that "works for" has to mean something in practice, not just on paper. The incentive was created to support sustainable employment, not to subsidise training arrangements dressed up as employment.
Read from an auditor's side of the desk, the note functions as a checklist. If you claim the ETI for someone, you should be able to show:
- That the person was under your supervision and control — you directed their work.
- That real tasks were assigned to them and monitored, with something to show for it.
- That leave was recorded and administered as it would be for any employee, in line with the Basic Conditions of Employment Act.
- That remuneration was genuinely paid to the person in cash — not routed to a third party as a training fee and relabelled.
- That hours worked were recorded, because the ETI calculation depends on them.
ETI penalties: what it costs to get wrong
The penalties are what make this worth your attention, because they stack:
- Pay a qualifying employee less than the applicable minimum wage or wage regulating measure and you were never eligible — yet still claimed. That carries a penalty of 100% of the ETI received for that employee.
- Displace an existing employee to make room for an ETI claim and the penalty is R30,000 per displaced employee.
- Claim ETI on remuneration that is disqualified and a dedicated 100% penalty applies.
- On top of that, understatement penalties under the Tax Administration Act can reach 200% of the shortfall, and SARS can reopen earlier assessments where there has been negligent or fraudulent misrepresentation.
The last point is the one that catches people out. An ETI claim you made two or three years ago is not closed simply because the reconciliation was accepted at the time.
The rules you're being audited against
Worth restating the current position, because the numbers moved with effect from 1 April 2025 and plenty of payroll setups are still running on the old ones. You can confirm the detail on SARS's own Employment Tax Incentive pages and in the changes from 1 April 2025.
Who qualifies
- Aged 18 to 29 (the age limit falls away for employees in a special economic zone).
- Holds a valid South African ID, asylum seeker permit or refugee ID.
- Employed by you or an associated person on or after 1 October 2013.
- Earns at least the applicable minimum wage and less than R7,500 a month — up from the old R6,500 threshold.
- Is not a domestic worker and not a connected person in relation to the employer.
The R7,500 threshold and the 160-hour rule
This is where payroll accuracy stops being administrative and starts being financial. The incentive is calculated on a sliding scale by remuneration band, at a higher rate for the first 12 qualifying months and a reduced rate for the next 12, capped at 24 months per employee.
Where an employee works fewer than 160 hours in a month, their remuneration has to be grossed up to a 160-hour equivalent to test it against the threshold, and the resulting incentive is then grossed down in the same ratio. Get the hours wrong and both the eligibility test and the amount are wrong — see SARS's how the ETI works and the ETI validation rules for the mechanics.
Part-time, shift and variable-hours staff are where ETI claims most often go wrong — not through dishonesty, but because hours were estimated rather than recorded. A part-time employee earning under R7,500 for 90 hours a month may be over the threshold once grossed up to 160 hours.
Making your payroll the single source of truth
An ETI audit is an evidence exercise. SARS asks you to prove, employee by employee and month by month, that the person qualified and that the amount you claimed was correct. If that evidence lives in a spreadsheet somebody maintained alongside the payroll, you have a problem — not because it's wrong, but because you can't demonstrate that it isn't.
The practical defence is to make the payroll itself the record, so the audit trail is a by-product of running payroll rather than a reconstruction afterwards. In practice, Employment Tax Incentive compliance comes down to five things being captured as you go:
- Eligibility tested automatically on every run — age, ID type, employment start date, remuneration against the current threshold, and months already claimed — instead of a manual list someone remembers to update.
- Hours captured properly, ideally imported straight from your time and attendance system, so the 160-hour gross-up is calculated rather than estimated.
- Leave recorded and BCEA-compliant as a matter of course, which is exactly the evidence of a real employment relationship that SARS now asks for.
- The 24-month clock tracked per employee, so claims stop when they should.
- The claim flowing through to your EMP201 and reconciling at EMP501, with historical periods still retrievable years later when SARS asks about them.
This is what Bluubin's ETI handling is built to do: check each employee's eligibility on every payroll run, apply the current sliding-scale values including the pro-rata for partial months, track the months used, and carry excess ETI to your EMP501 reconciliation. Bulk hours import brings hours in from your clocking system, leave administration keeps BCEA-compliant records without a side spreadsheet, and e@syFile exports keep an unlimited archive of past reconciliation periods.
What to do this month
- Check the threshold your payroll is actually applying. If it's still R6,500, your claims have been wrong since April 2025.
- Pick three current ETI employees at random and try to assemble the evidence pack: who supervised them, what work they did, their recorded hours, their leave. If you can't, that's your audit exposure.
- Review any arrangement where a third party — a training provider, labour broker or institution — sits between you and the person you're claiming for. That's precisely the territory Interpretation Note 145 addresses.
- Confirm nobody has been claimed beyond 24 months.
- Read the note itself. It's on the SARS interpretation notes page, and it tells you what an auditor will be looking for.
If you're newer to the incentive and want the mechanics rather than the compliance angle, our guide to claiming the ETI covers who qualifies and how the claim works on the EMP201.
The ETI is still very much worth claiming. Nothing in Interpretation Note 145 changes that. What it changes is the standard of proof — and the employers who'll come through an audit comfortably are the ones whose payroll already holds the answers.
This guide is general information to help you get oriented — it isn't formal tax or legal advice. Thresholds, rates and deadlines change, so confirm the current figures on the SARS website or with your accountant before you act.