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To appoint an Independent Contractor (Mar'2013)
Appointing someone to work for you will be seen as employment, ito. which the full force of the Basic Conditions of Employment Act (BCE Act) and the Labour Relations Act (LR Act) comes into play.
An alternative is to appoint someone as an Independent Contractor and conditional on certain circumstances, a pure common-law contract comes into being which is not as onerous as the above.
This page attempts to give guidelines on how to appoint someone as an Indpendent Contractor and the implications ito. the Income Tax Act (IT Act) - 4th Schedule.
EMPLOYEE VS. INDEPENDENT CONTRACTOR ito. BCE Act & LR Act
Although the phrase 'Independent Contractor' is used in the above Acts, is it nowhere defined, and we have to look in the Common Law to get clarity.
There is a clear distinction between an Employee and Independent Contractor, ie. someone who works in your garden or factory or office, as opposed to a plumber or builder or consultant who comes in, quotes, does the job and gets paid. There is however a myriad of instances where the distinction is not so clear.
INDEPENDENT CONTRACTOR RERQUIREMENTS
In order to successfully appoint someone as an Independent Contractor, herewith the requirements to comply with, in the order of most simple (but least sure) to most complex (and most sure) ......
(Please note: A natural requirement is always that you are provided with an invoice (of some sorts), upon which payment is made)
- Where a person comes in on a short term basis, quotes on a job, completes it and receives payment
- Where a person is appointed on a longer term basis, but payment is clearly conditional on the provision of certain specific goods or services.
- Where more than one person HAS to work together on providing the goods or services.
- Where you deal with a Company .... Pty(Ltd) or CC, or a Trust. Although an Independent Contractor could be a natural person, does it so much more strengthen the case if your dealings are with a juristic entity instead.
++ A caveat to the above is that the IT Act has a more narrow defintion of an Independent Contractor, which goes further to define an entity as a Personal Service (Provider) Company or Trust, where ......
*** payment for work done is to a Company or a Trust, AND
*** work is rendered personally by a 'Connected Person' of the Company or Trust, AND
*** work is performed mainly at the premises of, and subject to the control and supervision of the Client
++ To be clear of the law, must 28% in the case of a Company, or 40% in the case of a Trust be deducted as PAYE and paid over to SARS. Such Tax can be recovered by the Independent Contractor when offsetting expenses (ie. wages, salaries, etc) against income at the Tax Return and Assessment stage.
++ So, it may be all good and well to appoint someone in this grey area, but if you are not setup to deduct and pay over "employee" taxes, may this option not be worth your while to pursue.
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Pierre Leon Myburgh