Is the deduction of UIF contributions from the remuneration of private directors (executive and non-executive) mandatory?
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
In terms of section 1 of the Unemployment Insurance Contributions Act, 2002, “employee” means any natural person who receives any remuneration or to whom any remuneration accrues in respect of services rendered or to be rendered by that person, but excludes an independent contractor. The Act doesn’t define the concept ‘independent contractor’ and it must take it ordinary meaning – see for instance the Niselow case.
Section 4 provides that this Act applies to all employers and employees, other than -
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an employee and his or her employer, where such employee is employed by that employer for less than 24 hours a month…
There is no exemption, but if the individual concerned is independent contractors, he or she will not be an employee for purposes of the Act and consequently the employer must not deduct employee's contribution from payments made. Note, that a director of a private company who is not otherwise included, is an employee – see subparagraph (g) of paragraph 1 of the definition of employee in the Fourth Schedule to the Act.
In this respect, the definition of “remuneration” is also important. It means “remuneration” as defined in paragraph 1 of the Fourth Schedule to the Income Tax Act, but does not include any amount paid or payable to an employee -
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by way of any pension, superannuation allowance or retiring allowance;
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which constitutes an amount contemplated in paragraphs (a), (cA), (d), (e) or (eA) of the definition of “gross income” in section 1 of the Income Tax Act; or
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by way of commission;
In terms of binding general ruling 40, effective 1 June 2017, “director’s fees received by an NED for services rendered as an NED on a company’s board, are thus not “remuneration”, and are not subject to the deduction of employees’ tax.” The NED refers to a non-executive director of a company.
Note, that a director of a private company who is not otherwise included, is an employee – see subparagraph (g) of paragraph 1 of the definition of employee in the Fourth Schedule to the Act.
It is therefore only where the person is an independent that the contribution is not required.