With South Africa’s strict labour laws many employers are choosing to outsource work to contractors rather than employing people on a full-time basis. While this may provide some relief in respect of the labour laws employers may still have SARS obligations to these service providers more commonly known as a personal service provider or “PSP".
A PSP has been included in the definition of an employee for tax purposes and in is defined as:
Any company or trust, where any service rendered on behalf of such company or trust to a client (deemed employer) of such company or trust is rendered personally by any person who is a connected person in relation to such company or trust, and any one of the following apply:
(a) such person would be regarded as an employee of such client if such service was rendered by such person directly to such client, other than on behalf of such company or trust; or
(b) where those duties must be performed mainly at the premises of the client, such person or such company or trust is subjected to the control or supervision of such client as to the manner in which the duties are performed or are to be performed in rendering such service; or
(c) where more than 80 per cent of the income of such company or trust during the year of assessment, from services rendered, consists of or is likely to consist of amounts received directly or indirectly from any one client of such company or trust, or any associated institution as defined in the Seventh Schedule to this Act, in relation to such client, except where such company or trust throughout the year of assessment, employs three or more full time employees who are on a full time basis engaged in the business of such company or trust of rendering any such service, other than any employee who is a shareholder or member of the company or trust or is a connected person in relation to such person.
If the any of the above applies the PSP is deemed to be an employee and all remuneration received by its client is subject to employee’s tax by the employer in the form of PAYE.
In the case where the “personal service provider” is:
i) a company or close corporation, employees’ tax at the rate of 28% must be withheld by the client (employer) of the company or close corporation; or
ii) a trust, employees’ tax must be withheld by the client (employer) at the rate applicable to trusts (other than special trusts) which is currently 40%
The only exception is in a case where the PSP provides its client with an affidavit stating that the relevant paragraphs do not apply. If you deal with PSP’s we recommend that you have policies and systems in place to correctly identify PSP’s and ensure that PAYE is paid by your payroll department.
For any queries regarding the above or any other compliance related matters contact Oriole on 011 346 2422 or firstname.lastname@example.org