The independent contractor, a term or title that has caused confusion in the minds of the payroll processor.  The big question: to tax them or not to tax them that is where the conflict lies.  So what do we need to look out for when deciding how to tax the independent contractor?

The interpretation note makes three points.

1)      Is the independent contractor earning remuneration as defined in the fourth schedule:  the test is an employer paying remuneration to an employee?

2)      Does the relationship pass the statutory test

3)      Does the relationship pass the common law test


A.     Is the employee earning remuneration.

Ø  Well the receiver says you must decide and if you cant ask the receiver to decide for, this is strictly not allowed.

“Wheretheprovisionsofexclusionarysubparagraph (ii)ofthedefinitionoftheterm “remuneration”areapplicable,itistheresponsibilityoftheemployertodetermine whetherornotthepaymentsaresubjecttoemployees’tax.Notonlyisthis responsibility set by the provisions of the Fourth Schedule, but it is also the employer that is in the best position to evaluate the facts and the actual situation.”

Ø  Furthermore if you get the decision wrong well then you are liable for the payment although you may claim this back from the employee

Anemployerwhohasincorrectlydeterminedthataworkerisanindependent contractor is liable for the employees’ tax that should have been deducted, as well as the concomitant penalties and interest. The employer has the right to recover the tax paid from the employee.


B Statutory test

Ø  The first test is the worker under the control  of a manager in terms of duties and hours worked.

Thetestsprovideforadeemingprovisionthatapersonshallnotcarryonatrade independentlyiftheservicesordutiesarerequiredtobeperformedmainlyatthe premises of the client and  the worker is subject to the control of any other person as to the  manner in which theworker’sdutiesareorwillbeperformed,or astothehoursofwork; or the worker is subject to thesupervision of any other person as to the  manner in which the worker’s duties are or will be performed, or as to the hours of work

Ø  Number of employee working for Independent contractor exceeds 3  then he will be seen as an independent contractor.

Anindependentcontractorwhoemploysthreeormore full-time employees, who are not connected persons in relation to him or her and are engaged in his or her business throughout the particular year of assessment, will be deemed to be carrying on a trade independently.

For a detailed how to apply the test download the interpretation note here.


C Common law

ThecurrentSouthAfricancommonlawpositionisthattheso-called“dominant impressiontest”(theTest)mustbeappliedtodeterminewhetheraworkerisan independent contractor or an employee. The Test makes use of several indicators, of differingsignificance or weight,which havetobeappliedin therelevantcontext. At common law, no single indicator is conclusive or a determinant of a person’s status. TheTestisessentiallyananalyticaltoolthatisdesignedforapplicationinthe employment environment to establish the dependence or independence of a person.

The person that is tested can be an individual worker or a business


For a detailed how to apply the test download the interpretation note here.