SARS published Interpretation Note 145 on 27 July 2026, providing meaningful guidance on the meaning of “employee” for the purposes of the Employment Tax Incentive Act.
The Employment Tax Incentive (ETI) was introduced in 2014 (established under the Employment Tax Incentive Act 26 of 2013 and introduced in 2014) as a mechanism to encourage employers to hire young and less experienced workers. The incentive allows qualifying employers to reduce the amount of Pay-As-You-Earn (PAYE) tax that must be paid over to SARS in respect of eligible employees. The policy objective is to reduce the cost of hiring young workers and to promote job creation.
For many employers, ETI has become a valuable payroll tax incentive. However, recent guidance from SARS makes it clear that employers should not assume that meeting the age, remuneration and contractual requirements alone is sufficient to support an ETI claim.
SARS published Interpretation Note 145 on 27 July 2026 and the note reinforces that an ETI claim requires more than compliant paperwork and payroll records. Employers must be able to demonstrate that the individual is genuinely working for the business and performing services that benefit the employer.
The meaning of “employee”
Interpretation Note 145 examines the statutory definition of “employee” in the ETI Act and clarifies that the legislation requires more than the existence of a signed employment contract. SARS emphasises that an employee must work for another person and directly or indirectly assist in carrying on that person’s business. In summary, employers must be able to demonstrate that the employee is actively performing services for the business.
SARS increased focus
The interpretation note places particular emphasis on certain arrangements involving businesses, learning institutions and individuals. SARS is concerned that some structures may create the appearance of employment while lacking the substance of a genuine employer-employee relationship.
Employers should consider whether they would be able to demonstrate, during a SARS audit, that an employee:
Interpretation note 145 serves as an important reminder that ETI is not merely a payroll calculation exercise. Employers should carefully review existing ETI claims and ensure that they maintain adequate evidence demonstrating that qualifying employees are genuinely employed and actively contributing to the business. In the current SARS audit environment, paperwork alone is not sufficient.
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
Kesiree Mari
Director – South Africa
Craig Willson
Manager – South Africa
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