09 Oct Employee or Independent Contractor
Employee or Independent Contractor
Many individuals question whether they are an employee or independent contractor for tax purposes. There are advantages and disadvantages to both options and guidance from SARS that determines your classification.
Employee – benefits to you:
- Annual and sick leave under the Basic Conditions of Employment Act
- Your employer withholds your tax and pays it over to SARS for you – no compliance risk or penalties
- Payslips makes it easier for you to apply for finance
- Permanent employment – peace of mind
Employee – disadvantages:
- If you are a commission earned it is harder to justify all your expenses to reduce your employment income on your tax return (home office, travel, meetings etc.)
Independent Contractor – Advantages:
- Invoicing your company means you receive the full amount billed
- Easier to justify all your expenses to reduce your income for tax purposes (home office, travel, meetings etc.)
Independent Contractor – Disadvantages:
- No leave entitlement
- Fixed contract could leave you out of work
- Tax compliance – filing of provisional and tax returns may result in penalties
SARS applies various tests to determine whether one is an employee or independent contractor that can be found in Interpretation Note 17 which includes some of the following:
- Are you under the supervision of someone?
- Are you free to work for other companies?
- How much of your income comes from one source?
- Where do you perform the work?
- Is your contract fixed or open ended?
If you require some guidance and assistance with the above please give Office Badger a call and arrange a meeting with one of our tax practitioners.