Contract worker and tax issues - what to do?

[Recruitsmiths]

Hi there forumites,
I need some friendly advice on how to implement tax for a contract worker. Suppose I contract someone for 4 months (could extend to 6 or 8), is normal UIF, PAYE etc deducted and paid to SARS? The contractor says he's registered as a provincial tax payer (hope I got the term right) as he only works per contract basis & therefore submits tax twice a year. But how do I know this or would know? Don't want to run foul of SARS in any way...hence the request. Tks.

 

[Dee96]

IIRC... if you get an affidavit from him... You are covered...

I think you need to read para 2(1A) of the Fourth schedule or there about

 

[noxibox]

If they're an independent contractor then you just pay them and leave it up to them.

 

[Slaught3r]

Being a contract worker this is what happens:

This dude should have a tax directive. This directive should state his tax rate (could be as low as 20%). This is the only tax he pays. BUT you should get his directive certificate from him. On your side you should record the certificate number etc. That is how I understand it, but maybe somebody else could verify as well.

The term is provisional tax payer.

 

[Recruitsmiths]

Thanks for the suggestions.....I could have heard the same from my book-keeper, but he would have sure filled it with more red tape and charged me R600.00 in the process...
Noxi...it's not easy as that...otherwise it looks like an ideal loop-hole to siphon funds. Had an instance when through some bad debts (my 1st 16 years ago); we reclaimed back the lost vat - following week, I had 3 very efficient ladies from SARS come inspect our books!

The term is provisional tax payer.

Moment I wrote my sphiel, I knew something was amiss! Tks!

 

[noxibox]

Most people who are called contract workers are simply employees. Look up the test for whether someone is an employee. If they fulfil the requirements, then unless they provide paperwork to the contrary just subtract tax, pay UIF and so on you would for any normal employee. Leave is obviously mandatory too, including the standard 3 year sick leave allowance.

 

[greg_SA]

In general, if you employ someone and pay them on a monthly basis, and you supervise the work that he does, then he is a normal salaried employee, and you must deduct tax. This is even if it is a short-term contract.

If they are contracted to do a specific piece of work - for e.g. the quote (up front) to carry out a specific piece of work, and they do the work themselves (without your direct supervision), then they can be classified as an independent contractor. Then they invoice your company, and you pay them cash - they will have to declare the income and pay the tax via provisional tax payments.

SARS wants prefers people to be salaried employees, but it is a slightly grey area to define exactly which category the person falls into. As far as I understand, it is safer for the company to pay the person as an salaried employee, with all benefits and deduct tax.

 

[noxibox]

If they are contracted to do a specific piece of work - for e.g. the quote (up front) to carry out a specific piece of work, and they do the work themselves (without your direct supervision), then they can be classified as an independent contractor. Then they invoice your company, and you pay them cash - they will have to declare the income and pay the tax via provisional tax payments.

They can also sub-contract the work to someone else if they choose.

 

[KalMaverick]

There's the independent contractor criteria he might meet.

The easiest being whether or not he employs 3 or more full time non-connected persons.

SARS has a flow diagram that you can use to determine whether they're independent contractors or not and if they're are then afaik there is no issue.

 

[DominionZA]

I have been a contractor for a while and these are the various scenarios I have faced.

Most of my contracts work on a monthly retainer running indefinitely with 2 months notice either way.

Always employed as an independent contractor.

I have to produce a letter from my accountant stating that I pay my own tax. Without it the companies require that they pay it on my behalf.

If I earn more than 60% of my total income from a single company for more than 6 months (or something) , then I have to go permanent.

I get leave and some of the general perks associated with perm staff. Not always, but most often. I don't squabble over this though.

I am not at all clued up on all the tax stuff. I depend on my accountant to advise me and keep things legal. She ensure my VAT and taxes are paid on time when they should be.
In 8 years or so, only been audited once. So think all is okay.

 

[Recruitsmiths]

Thanks to all you folks...am much more wiser now.