Brokers profit from youth tax incentive

2014-08-31 15:00

JSE-listed labour broker Workforce Holdings got substantial assistance from the Employment Tax Incentive (ETI), otherwise known as the youth wage subsidy.

Like its larger peer Adcorp, Workforce is pocketing the ETI instead of passing it on to clients – who are supposed to be given an incentive by the tax break to hire more young people.

City Press recently reported that Adcorp had claimed R7?million in ETI by the incentive’s second month in February, according to its annual report this year.

Workforce said in its report to shareholders that the ETI had had a “substantial” effect on its results.

The company’s major division, staffing and recruitment, increased its operating profit in the first half this year by 28% to R63?million compared with the first half of 2013.

Overall, the company’s profit almost doubled to R24?million.

Workforce’s financial director, Willie van Wyk, told City Press this week that the company would not disclose how many people it had on the ETI, how much benefit it was deriving or whether it would be passing the subsidy on to clients.

The group places approximately 25?000 workers at other companies.

“We are thus not at liberty to disclose this information at this stage, both on account of good business practice, as well as JSE rules and regulations,” he said.

This is because the information would be of a “competitive nature” or because it had not been disclosed to the market, he said.

“As a business, we refrain from debating the effect of government legislation, however positive we believe this specific legislation has been for the stimulation of youth employment.”

Treasury budgeted R1?billion for the incentive this year. Between January and May, 11?000 companies had already claimed ETI in relation to about 133?000 employees.

Adcorp, the country’s major JSE-listed labour broker, earlier admitted the subsidy would only achieve its purpose of stimulating more demand for labour if it actually reached the clients who demand the labour.

At the same time, Adcorp told City Press it would deal with clients that requested a “participation factor” on a “case-by-case basis”, meaning by default it would pocket the subsidy itself.

Adcorp accounts for the ETI as a component of its “other income”, while Workforce includes it in its books as a unspecified reduction in its cost of sales.

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