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Thread: what do I need when I employ contractors?

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    Platinum Member SilverNodashi's Avatar
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    what do I need when I employ contractors?

    Hi all,

    I've only ever outsourced extra work to other companies, which made everything (income TAX, PAYE, UIF, etc) just so much easier to handle from an accounting point of view.

    But for a large project that we recently took on, I've decided to "permanently employ" a contractor - if one can call it that.

    What do I need, in terms of contract(s) and tax for this person? He will basically work on add-hoc projects and be paid for the work done, per hour. So some days he'll work for 8 hours, other days for 2 or 3 hours, depending on the work. The work is development based, and he'll have full use of our office space, PC(s), internet access, etc. If he wants todo research in his off-time, that's fine as well, as long as it's work / business related. i.e. I don't want him to research the human body or "sexual education", etc.

    And from a TAX / labor perspective, what do I need?
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    Diamond Member wynn's Avatar
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    Rather get the contractor to give you a quote for work done by the hour and then he can bill you for the hours/days worked on your project.
    You can keep a register so you can see how long he has worked.

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    Platinum Member SilverNodashi's Avatar
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    Quote Originally Posted by wynn View Post
    Rather get the contractor to give you a quote for work done by the hour and then he can bill you for the hours/days worked on your project.
    You can keep a register so you can see how long he has worked.

    sure, that's one way around, but we've been burned this way a few times already. For example, contractor quotes for 10 hours @ R300ph, then ends up spending 5hours todo the job and pockets the rest. So I want to get someone "in-house", but on a contractual basis. A lot of the work that he'll do will be in close collaboration with our in-house graphics designer, so it's not practical to him work somewhere else and drive up and down the whole time. I just need to know that our bases are covered, in terms or compliance & legality if that makes sense?
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    Diamond Member wynn's Avatar
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    He must give you a rate per hour worked not for the job, so you only pay him for the time he has worked.
    That is why he would sign in and out in the register, so you can keep track.
    You would need a system to make sure he is not farming on the job.

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    Platinum Member sterne.law@gmail.com's Avatar
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    If you are going to excercise control then said person is presumed to be an employee. Forms of control include dictating hours, what work to do when and where. An independent contractor in the true sense can also send someone else to do the work. Based on your post, these are inherent factors for you. you want that person only to do the work and you will be dictating the manner and when and how. That means the person is a presumed employee. Furthermore if the person is dependent on you for income then that is another factor that points to an employee/employer relationship.
    Therefore I suggest you place the person on a fixed term contract. You can choose the time period. A fixed term contract can still be terminated prior to expiry date for the normal reasons and procedures as an employee would be dismissed. The time period can be related to a date or project specific. So if the nature of the work is such that there are different segments or tasks you could make a contract for each task.
    The terms of the contract can be as agreed. You can have an hourly rate and make it clear that there are no guarantees of set hours. You can set targets or performance standards just like in an employment context, which is also recomended for contractors.
    perhaps your biggest challenge is the fee structure. As you say if you make a set amount for a job and the person finishes sooner, then they pocket the money. By the same token when people are hourly paid they tend to stretch the hours (check attorneys tactics - masters) If you go the fixed term route, you could set a monthly rate and have a very task orientated startegy. perhaps haveing a bonus for work completed sooner(if this has benefit to you)
    Anthony Sterne

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    DISCLAIMER The above is merely a comment in discussion form and an open public arena. It does not constitute a legal opinion or professional advice in any manner or form.

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    Platinum Member SilverNodashi's Avatar
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    You do raise a good point,in that he gives me a quote, and then invoice for the time worked.

    But, how do I have more control over what he does? And how can enforce certain policies, like:

    1. work hours is from 8am to 5pm. We don't work after hours and he's expected to leave by 5pm. This sounds funny, I know, but I have a gripe with guys who pitch @ 11am (then tell me it's early) and leave @ 19:00.
    2. We will supply him with a desk, phone, PC, test server, all needed software licences (Widows,Development tools, test server, etc) and internet access for work purposes only. So, what do I do when he plays games, on our time? OR surf porn, download warez, etc on our internet line. Yes, I'll close-up what is needed on the firewall but since we work with internet clients & websites (we had a facebook module client before, and also a client who runs a legal porn video website) it's could interfere with actual work.
    3. When there's work to be done, I expect his commitment, but when there's no work, he's welcome to use the internet for his own use, be it research, or games, or even teaching himself new skills, advancing his current skills. This will still be limited to the "fair internet usage" clause above. He will be allocated an X amount of bandwidth per month, after which we'll deduct the rest from his "salary"
    4. We expect him to look @ act professional. IT people (myself included) can sometimes be very excentric and "grunge looking". If that's his style, fine, but when we see clients I expect him to look neat, smell clean, and act mature & professional.



    There's probably some more, but I can't think of it right now.

    But then, back to business, what about TAX / UIF / PAYE / benefits / etc? He won't be driving much, but I have some jobs which I could give him todo at client's premesis once a week or so. So in this case I'll need to give him travel allowance, or something?
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    Platinum Member SilverNodashi's Avatar
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    Platinum Member sterne.law@gmail.com's Avatar
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    Perhaps lets address the issue of contractor vs employee - I think you will agree that the person will need to be an employee. You can give them a independent contractor deal, but by virtue of the code of presumption of who is an employee , they will be an employee. You do not however want the person, at this stage, to be around for ever. this is exactly what fixed term contracts and, now that I think of it, Labour Brokers, were intended for.
    If you want to run him as a contractor, you can still dictate to a certain extent. You can set conditions and even teh payment scheme can be similiar to an employee. Travelling can be pre agreed at a rate and conditions, telephone etc. Any contractor needs to observe the clients rules. the computer belongs to you and you can say what a person can or cannot do.
    Also as a contractor you are free to terminate the business deal, fairly easily.

    I still feel strongly however that you need to go employee route and use fixed term contract that is task specific. Even if a person says they will be an independent contractor and sign etc, if they turn around and say hey I was an employee, the onus is on you to show this is not so, which is going to be difficlut with the amount of control you want to have.
    The employee route, requires paying tax where as the contractor you have no such obligation.
    Anthony Sterne

    www.acumenholdings.co.za
    DISCLAIMER The above is merely a comment in discussion form and an open public arena. It does not constitute a legal opinion or professional advice in any manner or form.

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    Platinum Member SilverNodashi's Avatar
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    Thanx for your reply Sterne.

    From what your'e saying it would be easier to go the contractor route. BUT, can I encorce our policies on him then? And how?
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    Platinum Member sterne.law@gmail.com's Avatar
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    Quote Originally Posted by SoftDux-Rudi View Post
    Thanx for your reply Sterne.

    From what your'e saying it would be easier to go the contractor route. BUT, can I encorce our policies on him then? And how?
    It is the same as doing business with anyone, if I do not like what you are doing I get some one else. however that is not always conducive, particulalry in your line where continuity is important.
    Even if you get a building contractor an outline of requirements and expectations can save a lot of time and money. eg, rubbish may not be on premises for more than 48 hours (although it seems like control it is no more than a specific performance term of the contract)
    Payment is done as tasks are completed or like building paid as completed, but a certain amount retained (always a good position to be in)

    The big key for me, to have an extra protection, from the contractor saying he is an employee, will be to word the contract so that you do not dictate actual hours. I wnat to give an example - estate agents really are free agents, however a number of cases turned because the agents had to attend a weekly meeting. that was enough to satisfy the control test and they were deemed employees and fell under CCMA jurisdiction. by making key performance areas as terms of the contract you would then be controlling his hours indirectly. So by saying such and such a task needs to be completed by Thursday. This is where the contract linking to tasks will play a big role.


    Naturally you as the client can still specify certain service criteria, in other words a meeting with another client requires a specific performance and because it is irregular, it does not show too much direct control.
    I would suggest you draft something as you would give it to an employee and then edit/alter/adapt so as to strengthen the contractor role.
    if you like, feel free to email such draft to me and I will glady comment.

    Anthony
    Anthony Sterne

    www.acumenholdings.co.za
    DISCLAIMER The above is merely a comment in discussion form and an open public arena. It does not constitute a legal opinion or professional advice in any manner or form.

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