South Africa has, for more than a decade, used a combination of tax and policy measures to encourage employers to create opportunities for young people. The Employment Tax Incentive (ETI), the Youth Employment Service (YES), learnerships, skills development and workplace experience programmes all form part of that broader policy response.
Employers that participated in these programmes in good faith now face a harder question about whether the tax consequences were as clear as the policy messages suggested. The issue has again come into focus following SARS’s publication of Interpretation Note 145 (IN145), which deals with the meaning of “employee” for purposes of the ETI Act. The July 2026 update refers to arrangements, often involving learning institutions, where SARS considers that participants would not meet the definition of “employee” for ETI purposes. SARS’s view is that the ETI is not intended to subsidise the training of unskilled workers, but to incentivise sustainable employment protected by labour law.
That proposition is understandable. However, it does not answer the more difficult practical issue. What is the position where employers were encouraged, as a matter of public policy, to create structured youth opportunities for persons who were not yet work-ready, and where those arrangements necessarily involved training, service providers, learnerships or host environments?
The ETI was introduced as part of National Treasury’s 2011 discussion paper,
Confronting youth unemployment: policy options for South Africa, the precursor to the 2013 Explanatory Memorandum and the draft ETI Bill. The discussion paper and Explanatory Memorandum both recognised that young people who acquire work experience, skills and workplace exposure are more likely to find employment than those who do not. The incentive was therefore one measure within a wider youth employment strategy. It was aimed at reducing the cost and perceived risk of employing young, entry-level and inexperienced work seekers.
National Treasury expressly stated that the youth employment subsidy could make the training of young workers more affordable and contemplated that employers could claim learnership incentives alongside the subsidy where formal training was provided. Against that backdrop, the distinction between employment and training may not always be as clear in practice as it appears in principle.
The updated IN145 emphasises that the person must work for the employer, assist in carrying on or conducting that employer’s business, and receive or be entitled to remuneration from that employer. A person will generally not be an employee for ETI purposes where, despite an employment contract, the person performs no work for the organisation, does not assist in its business, is not supervised or controlled by it, or is not remunerated by it for work performed.
The difficulty is that not every structured youth employment arrangement is artificial. Some employers used service providers, registered learners, host employers, stipends or structured workplace exposure because that was the model government appeared to encourage. For those employers, the present position may feel less like ordinary tax administration and more like a retrospective narrowing of the rules.
The 2018 YES Practice Note under the B-BBEE Codes provides for a 12-month quality workplace experience and contemplates placements with exempt micro enterprises, qualifying small enterprises and non-profit organisations. It also refers to implementation partners, service providers, skills suppliers and host entities in the registration framework.
One part of government has therefore promoted a model in which companies may sponsor youth opportunities through host environments and implementation partners. Another part, through SARS, treats the ETI claim as vulnerable where, in SARS’s words, the participant does not “work for another person” and “assist in carrying on or conducting the business of that other person”.
President Ramaphosa has described YES as part of South Africa’s economic growth strategy and called for rules that make it easier for good companies to participate and be recognised for creating quality work experience internships. In June 2026, Deputy Minister Nonceba Mhlauli similarly described YES as a significant private-sector partnership supporting youth employment and said government must remove unnecessary barriers for businesses willing to invest in young people.
If one arm of government encourages businesses to participate in youth employment programmes, while another later challenges the tax assumptions on which those programmes were implemented, the result is uncertainty and, in some cases, litigation. The affected employers incurred real costs, contracted with service providers and participated in learnerships or workplace programmes in response to a national unemployment crisis.
The debate should therefore not be reduced to whether the ETI is an employment incentive or a training incentive. For young people who have never worked, training and employment often overlap. A host employer may also be the only practical way to provide experience where the sponsoring company cannot absorb large numbers of young people directly.
If government wants businesses to fund youth employment at scale, the rules should be clear before employers commit funds. Employers should not be asked to help solve a national unemployment crisis and then, years later, be left to argue with SARS about whether the pathway used to create opportunity was the wrong one.
The ETI was created to encourage employers to take a chance on young people. It should not become a tax risk for those who did so in good faith.
