[Question] Tax implication for sales agents who earn commission from our business but are not on our payroll

[Gibbs]

Hi All

We have a small business which offers commission to anyone who sells our product and my question is since these people are not on my payroll, what are the tax implications, please find attached the link of our business. http://help365.biz/?agentID=5579

[Beancounter]

Part-time work and casual work

PAYE must be deducted at a rate of 25% in respect of all employees who:
•Work for an employer for less than 22 hours per week - OR-
•Work for an employer for an unspecified period.

Examples include:
• A person employed on a daily basis, who is paid daily and who gets paid more than R75 per day;
• Casual commissions paid, for example, spotters fees;
• Casual payments to casual workers for irregular/occasional services;
• Honoraria paid to office bearers of organisations / clubs

The following people are exempt from this:
• If an employee works regularly for less than 22 hours per week and provides the employer with a written undertaking that he or she does not work for anyone else, then they will be regarded as being in standard employment and tax must be deducted according to the normal weekly or monthly tables.
• An employee who is in standard employment (in other words, who works for one employer for at least 22 hours per week).

Refer Paralegal Advice website RSA

[dellatjie]

Ouch!!

[CLIVE-TRIANGLE]

I doubt whether Gibbs' scenario is subject to this. As I understand it they are not employees; part-time or casual.

You should just keep an accurate record of commission payments and the relevant calculations. Depending on which IT14R you have to complete, there will be a question "Did the company pay any commission?" and it asks for the amount paid when you answer yes. Depending on the circumstances you may be requested to upload supporting documentation.

I know the criteria posted by Beancounter is pretty all-embracing, but I have never seen it applied in practise.

[Beancounter]

I doubt whether Gibbs' scenario is subject to this. As I understand it they are not employees; part-time or casual.

You should just keep an accurate record of commission payments and the relevant calculations. Depending on which IT14R you have to complete, there will be a question "Did the company pay any commission?" and it asks for the amount paid when you answer yes. Depending on the circumstances you may be requested to upload supporting documentation.

I know the criteria posted by Beancounter is pretty all-embracing, but I have never seen it applied in practise.

I think Gibbs' scenario is more in line with example 2 - spotters fees. Not every one complies and deducts the 25% as you would have to get all of the person's details to issue an IRP5 and that's just a hassle. It remains to be seen if and when SARS will enforce it.

[wynn]

If you issue an invoice for the full amount including commission to the purchaser I am sure you can reflect the commission as a credit against that invoice for your purposes?

[Mike C]

I think Gibbs' scenario is more in line with example 2 - spotters fees

Could they not be regarded as independant contractors and submit an Invoice for commission earned at the end of each month?

THE EMPLOYEE AND CONTRACTOR DEBATE
The contract of the independent contractor is characterised by the fact that one person hires another person to do a specific job or a specific piece of work.
The following can be said about the independent contractor:
The person letting out the work is seen as the principal and the person doing the work is seen as the agent.
The contractual relationship is totally different – it is not a contract of employment, but a contract relating to the performance of a certain piece of work.
Another feature of the contract of an independent contractor is that there is far less control by the principal over the agent (contractor) than an employer has over the worker.
As such, the Labour Relations Act and the Basic Conditions of Employment do not cover independent contractors

Acknowledgement:
Basson, A et al. 1999. Essential Labour Law. Volume 1. Individual
Labour Law. Labour Law Publications, Groenkloof.
Employment contract – Definition, identification and formation
The meaning of employee – The first basic concept

[Beancounter]

Could they not be regarded as independant contractors and submit an Invoice for commission earned at the end of each month?

Totally possible. Again, SARS wants the company to obtain an affidavit or statement from the person declaring that they are in fact an independent contractor and not an employee. Refer the more than 80% income, supervision, 3 independent employees etc. But who does that?