A taxpayer who is a director of a company pays himself director’s fees instead of treating himself as an employee and registering himself for PAYE so that he can draw a salary. So the taxpayer invoices his business on a monthly basis for the director’s fe
Author: the Payroll Authors Group of South Africa
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
With regards to the part-time employees, please refer to the following:
A person who renders services is an employee if any one of the following is present:
1. Subject to control or supervision with regards to the manner in which the services are performed
2. The person is part of the organisation for which the services are rendered
3. The person has worked for at least 40 hours per month over the last 3 months
4. The person is economically dependent on the employer for who services is rendered
5. The person is provided with tools of trade or work equipment
6. The person only render services to this single employer.
Based on the information in your query, please note that following:
• Hours of work (3 hours a day is prescribed) which exceed the 40 hours a month (see 3 above)
• Uses company laptop (see 5 above)
• Communicate with supervisor daily (see 1 above)
SARS has issued an Interpretation Note no. 17 to assist employers who incorrectly identify a worker as an independent worker. In my opinion and the information provided in the query, this is not an independent contractor.
The normal tax deduction tables should be applied to all remuneration paid to this person unless there is a valid tax directive issued by SARS, then the employer should apply the instructions on the tax directive.
With regards to the director, please refer to the following:
Paragraph (g) of the definition of an employee in Fourth Schedule to the Income Tax Act define a director of a private company as an employee.
However, the exclusions from the definition of remuneration is those of an independent trade. In terms of the BGR40 (see attached), a resident non-executive director is not a common law employee, as such directors are normally not subject to control and supervision. If these statutory tests should apply, then such director’s remuneration, then PAYE, SDL and UIF becomes applicable.
An executive director, is a full time employee of the company and such director’s remuneration is therefore, remuneration as defined and PAYE, SDL and UIF is applicable.
Due to the fact that a director is defined as an employee, he should be added to the payroll of the employer and the remuneration should be reported accordingly on a tax certificate.