The bill will take effect from 1st January 2014 and will apply to all young workers hired on or after October this year.
“It’s a very simple mechanism. The way it works is that if anyone employs someone between the ages of 18 and 29, the employer will then in a sense be assisted with part of the wage or salary that they are paying, as long as the amount is between 2000 rand and 6000 rand per month,” Ismail Momoniat, deputy director general of tax and financial sector policy at the National Treasury told CNBC Africa in an interview.
He further explained that the bill applies to private employers and not to any public entities and that the employer has to be registered with the South African Revenue Services (SARS) for Employers tax, known as Pay-As-You-Earn (PAYE).
While the bill is aimed at school or university leavers seeking their first jobs, it only applies for a maximum of two years per employee as the main goal is to get employers to generate more jobs. Momoniat believes that after the two year work period, employees should be able to find work more easily.
“The tool has been aimed largely at people who are taking on their first jobs. I think all of the experience all over the world shows that to that extend that you can get that first job when you leave school or university, that actually makes you much more employable, it teaches you basic skills on how to work and that increases your chances of getting employment later on,” he explained.
“This is just meant to get employers to generate many more new jobs.”
On the other hand, the Congress of South African Trade Union (Cosatu) has criticised the bill, arguing that the initial proposal of a wage subsidy and its replacement, the employment tax incentive, would create a two-tier labour market and result in the displacement of older workers.
Momoniat disagrees with Cosatu’s comments and believes that South Africa’s labour system will protect older workers and that the incentive bill will in fact benefit trade unions.
“We don’t agree with Cosatu’s view point. From 2010, we think that we have accommodated a lot of their concerns; there are some punitive measures in the bills which I think will bring down the prospects for such abuses significantly. We also rely on the labour system and we have pretty high protections in our system,” he added.
“It’s not to say that you can always root out all abuse 100 per cent, you can’t do that in life but we think it has been reduced significantly and we think by and large there’re many positives, even for Cosatu because if there’s many more employees coming in, there’ll be potential recruits for union federations."
The government hopes the law will promote employment for young people and create jobs in special economic zones once legislation providing for them has been promulgated.