Labour Brokers - Personal Service Company - Independent Contractors?

Following article written and published by Nolands Chartered Accountants, www.Nolands.co.za

What are these "buzz" words that the South African Revenue Service (SARS) has come up with? Let's look at the official meanings as supplied by SARS:

Labour Brokers - For employees tax purposes a labour broker is a person who, for reward, provides a client with other persons to render a service or to perform work for the client. Typically, a labour broker either makes available his own employees to perform work for a client or he obtains workers for a client.
Personal Service Company/Trust - An employee who offers his/her services to an employer through the medium of a private company/close corporation or a trust.
Independent Contractors - In distinguishing between an employee and an independent contractor one must commence with an analysis of the employment contract. The object of the contract must be established:
 

o If the object is the surrender of productive capacity, then the contract is for employment of an employee. The essence of an employee's contract (contract of service) is the placing of one person's services (labour) at the disposal of another, enabling the acquisition of that service itself and not simply the fruits of that productive capacity.
o If the object is the acquisition of the result of deployed productive capacity, then the contract is for the employment of an independent contractor. The essence of an "independent contractor's" contract (contract for services or work) is that the independent contractor only commits himself to deliver the product or and result of that capacity.

Why the to-do; whether a taxpayer is a labour broker, personal service company or independent contractor? It all revolves around whether a "person" is an employee or not and whether, therefore, employee's tax is deductible from remuneration payable.

So who can be a Labour Broker and how are they taxed if they are not able to produce an exemption certificate?

Individuals - employees tax must be deducted according to the EMP 10 employees tax deduction t
Company or close corporation - tax must be deducted according to the rate applicable to employment companies (35%).
Personal service company / close corporation - tax must be deducted according to the rate applicable to
employment companies (35%).

This article has been condensed, to read the rest of this article please see the Nolands June / July 2001 Newsletter.

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