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Thread: what do I need when I employ contractors?

  1. #11
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    Quote Originally Posted by SoftDux-Rudi View Post
    And from a TAX / labor perspective, what do I need?
    Hi Rudi

    If you're paying this person for hours worked, i.e. effort, then as far as SARS is concerned he is an employee. Whether you structure your contract with this person as an employee or independent contractor is irrelevant.

    Because SARS views him as an employee, you have to deduct from his salary and pay tax / PAYE (nowadays they're synonyms) over to SARS every month. If this person usually works at least 22 hours per week, the tax is determined by the tax tables. If not, then 25% must be deducted. (But if he gives you a written declaration that he will not work for another employer while employed by you, you can use the tax tables instead). SARS may hold your company liable for the taxes if you don't do the deduction.

    You may want to read SARS Interpretation Note No. 17 - Employee's Tax: Independent Contractors, to further inform yourself. (Just google it). But I'm going to give you the relevant bits:

    The document lists some "Near conclusive indicators of the acquisition of productive capacity (i.e. employee status or non-independent business status), and one of them is:

    7.1.2: Payment Regime
    A worker can be paid with reference to a result (in which the manner of use is not controlled) or to effort (the use of productive capacity in a specific manner for the payment period). Payment without material reference to result indicates employee status, because the worker is then being paid for effort. It should be noted that:
    << snipped some of the points to get to the important one, below: >>

    Payment at regular intervals (whether at a fixed rate per time interval or at a fixed rate per hour) which fluctuates depending on the hours actually worked, but without material reference to output or result for that interval, indicates that there is an acquisition of a worker’s effort (productive capacity), as opposed to a result of effort (productive capacity deployed).
    Last edited by Dave U; 26-Mar-10 at 04:31 PM. Reason: Added missing info

  2. #12
    Site Caretaker Dave A's Avatar
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    When I read the title, the first thing that crossed my mind was "make sure they're in good standing with workmens compensation"

    It seems there are enough other issues to worry about in this instance, though.

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    Quote Originally Posted by Dave U View Post
    Hi Rudi

    If you're paying this person for hours worked, i.e. effort, then as far as SARS is concerned he is an employee. Whether you structure your contract with this person as an employee or independent contractor is irrelevant.

    Because SARS views him as an employee, you have to deduct from his salary and pay tax / PAYE (nowadays they're synonyms) over to SARS every month. If this person usually works at least 22 hours per week, the tax is determined by the tax tables. If not, then 25% must be deducted. (But if he gives you a written declaration that he will not work for another employer while employed by you, you can use the tax tables instead). SARS may hold your company liable for the taxes if you don't do the deduction.

    You may want to read SARS Interpretation Note No. 17 - Employee's Tax: Independent Contractors, to further inform yourself. (Just google it). But I'm going to give you the relevant bits:

    The document lists some "Near conclusive indicators of the acquisition of productive capacity (i.e. employee status or non-independent business status), and one of them is:

    7.1.2: Payment Regime
    A worker can be paid with reference to a result (in which the manner of use is not controlled) or to effort (the use of productive capacity in a specific manner for the payment period). Payment without material reference to result indicates employee status, because the worker is then being paid for effort. It should be noted that:
    << snipped some of the points to get to the important one, below: >>

    Payment at regular intervals (whether at a fixed rate per time interval or at a fixed rate per hour) which fluctuates depending on the hours actually worked, but without material reference to output or result for that interval, indicates that there is an acquisition of a worker’s effort (productive capacity), as opposed to a result of effort (productive capacity deployed).
    Thanx Dave U, this is what I was looking for, and would like to avoid. From this, it seems to be much easier to just work on a quote-and-invoice type contract.

    Quote Originally Posted by Dave A View Post
    When I read the title, the first thing that crossed my mind was "make sure they're in good standing with workmens compensation"

    It seems there are enough other issues to worry about in this instance, though.
    Dave, what do you mean, "there are enough other issues to worry about in this instance"?
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    Site Caretaker Dave A's Avatar
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    Let's say the discussion took an unexpected direction. When I think of hiring contractors, I'm generally dealing with a very different scenario.

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    Platinum Member SilverNodashi's Avatar
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    This whole process just went south. I had someone who was very keen on the work and would have started working on some client's projects in the beginning of the month. To date I haven't seen him yet, and I have clients waiting for work to be delivered.

    Now I need to source another few candidates, interview them and hope they can deliver. This is why I don't like outsourcing so much. I find that reliables companies / individuals are normally so full of themselves they feel they can charge ridiculous prices.


    Any suggestions?
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