How the Employment Tax Incentive is calculated in 2026: the three remuneration bands, the first and second 12-month rates, and worked examples that show how ETI reduces the PAYE an employer pays.
The Employment Tax Incentive (ETI) is calculated per qualifying employee, per month, from one figure: what that employee is paid. The result is then deducted from the PAYE the employer owes SARS on the EMP201. This guide sets out the current SARS table and works through the calculation with real numbers, so that an employer can check what the payroll software produces. > **Key facts (as at 22 September 2026)** > - Qualifying monthly remuneration: **less than R7,500**, for employees aged 18 to 29, with age exceptions in designated Special Economic Zones (SARS, rates effective 1 April 2025). > - Maximum incentive: **R1,500 per month** in the first 12 months and **R750 per month** in the second 12 months (SARS). > - Claim period: up to **24 qualifying months** per employee (SARS). > - The incentive is scheduled to **end on 28 February 2029** (SARS). What this guide covers: - The 2026 calculation table - Three worked examples, including the second-year rate - How the incentive reduces the PAYE payable - Common calculation errors - Answers to common employer questions ## The 2026 ETI Calculation Table SARS applies the same three bands in both years of the incentive. Only the amounts change. These rates took effect on **1 April 2025**, when the upper limit rose from R6,500 to R7,500, and they remain the rates published by SARS for 2026. | Monthly remuneration | First 12 months | Second 12 months | |---|---|---| | R0 – R2,499.99 | 60% of monthly remuneration | 30% of monthly remuneration | | R2,500 – R5,499.99 | R1,500 | R750 | | R5,500 – R7,499.99 | R1,500 − (0.75 × (remuneration − R5,500)) | R750 − (0.375 × (remuneration − R5,500)) | | R7,500 and above | No incentive | No incentive | The table assumes the employee worked at least **160 hours** in the month. Where fewer hours were worked, remuneration is first grossed up to a 160-hour equivalent. The table is applied to that figure, and the result is then reduced in proportion to hours ÷ 160. The employee must also be paid at least the applicable minimum wage, or R2,500 for 160 hours where no wage-regulating measure applies. At the National Minimum Wage of R30.23 an hour (from 1 March 2026, [SAnews](https://www.sanews.gov.za/south-africa/national-minimum-wage-rise-r3023-hour-march)), an employee on a 40-hour week earns about R5,240 or more. In practice, most full-time qualifying employees therefore sit near the top of the flat band or in the sliding band. The official figures and conditions are on the [SARS Employment Tax Incentive page](https://www.sars.gov.za/types-of-tax/pay-as-you-earn/employment-tax-incentive-eti/). ## Worked Example 1: The Flat Band Thandi (an illustrative employee) is 23, works a 40-hour week and earns **R5,400** a month. It is her fifth qualifying month. - R5,400 falls in the R2,500 – R5,499.99 band. - In the first 12 months, that band carries a flat **R1,500**. - The employer's ETI for the month is **R1,500**. ## Worked Example 2: The Sliding Band Sipho (also illustrative) is 26, works a 40-hour week and earns **R6,500** a month. It is his third qualifying month. - R6,500 falls in the R5,500 – R7,499.99 band, where the incentive tapers. - Remuneration above R5,500: R6,500 − R5,500 = R1,000. - Reduction: 0.75 × R1,000 = R750. - ETI for the month: R1,500 − R750 = **R750**. ## Worked Example 3: The Same Employee in Year Two Sipho's pay is unchanged, but this is now his fifteenth qualifying month, so the second-year column applies. - Remuneration above R5,500: R1,000. - Reduction: 0.375 × R1,000 = R375. - ETI for the month: R750 − R375 = **R375**. After 24 qualifying months, the incentive ends for that employee with that employer. ## How ETI Reduces the PAYE Payable The ETI does not change what the employee earns or what is deducted from the employee's pay. It reduces what the employer pays over to SARS. Suppose an employer's PAYE for the month is **R9,000**, and it employs Thandi and Sipho from the examples above: | Item | Amount | |---|---| | PAYE withheld for the month | R9,000 | | Less ETI: Thandi (qualifying month 5) | − R1,500 | | Less ETI: Sipho (qualifying month 3) | − R750 | | **PAYE payable on the EMP201** | **R6,750** | UIF and SDL are declared on the same EMP201 but are not reduced by the ETI. The monthly return is explained in the [PAYE, UIF and SDL guide](https://atlan.co.za/news/paye-uif-sdl-explained-small-business). Under the SARS employer guide, ETI that exceeds the month's PAYE is carried forward to the next month. At the end of each six-month reconciliation period (August and February), a tax-compliant employer can claim the balance as a refund. Amounts not claimed by then are forfeited. ## Common Calculation Errors **Remuneration of exactly R7,500.** The limit is *less than* R7,500. An employee earning R7,500 does not qualify. **The wrong year column.** The first and second 12 months count **qualifying months** only, not calendar months from the start date. Months in which the employee did not qualify are skipped, so pay...