Get the tax details right
INCORRECT CLASSIFICATION OF STAFF COULD COST EMPLOYERS If employers don’t withhold employees’ tax from employees where appropriate, they could incur penalties and interest and be responsible for tax.
audits, which might go back several years. Although the employee may not be working at the company anymore, the employer would still be held responsible for the employees’ tax, unless Sars absolves the employer from the liability.
But the distinction between employees and independent contractors may not be as clear-cut as it seems.
Esterhuizen said human resources departments or payroll administrators aren’t necessarily equipped with specialist tax skills and may not understand the implications of deciding on and applying the applicable tests.
Two tools are available to determine whether a person is an independent contractor for employees’ tax purposes: the statutory tests and the common-law tests.
Esterhuizen said there’s a risk that employers could interpret the tests differently to a Sars auditor. Although the interpretation note is quite comprehensive, it might seem contradictory in some places.
While one wouldn’t expect an independent contractor to receive benefits, in practice they find these individuals do sometimes receive travel allowances, incentives and even shares, said KPMG’s Cecelia Madden.
“I’d say, watch this space. You would have seen something in the newspaper about Sars not collecting as much as they should have. It just takes one company to get this ball rolling,” added Vedika Andhee of EY.
There’s also a risk that the onslaught could be initiated by workers themselves, not by Sars. Andhee said in the US there are issues about the distinction between employees and independent contractors at Uber and rival Lyft; attacks come from individuals who argue they aren’t independent contractors but employees, and are therefore entitled to benefits.
She said the worst situation an employer could be in is for a worker to approach Sars, arguing that he/she is an employee – thereby triggering an investigation. Employers must be careful and ensure the necessary controls are in place.