HR 101 - Labour Broker Employees – Part 2

HR 101 - Labour Broker Employees – Part 2

By Nikki Viljoen of Viljoen Consulting (Pty) Ltd - January 2010

Please note that this pertains to South African Labour Relations and Best Practice requirements.

Following on from last time, this time we will look at some of the other requirements pertaining to Labour Brokers, particularly with regards to the payment of PAYE/UIF/SDL payments.

Who is responsible for paying the PAYE/UIF/SDL.  In 1990 the definition of an employee for the purpose of PAYE was extended to a “Labour Broker”. “A Labour Broker is defined as any person who carries on the business of providing the client with other persons to render services or perform work for such client for reward.”  An additional requirement was put into place however and that was that the Labour Broker had to apply for and be in possession of a valid ‘exemption certificate’. So what does this mean? 

Well essentially it means that like any person who is self employed, if more than 80% of the income of the Labour Broker is received directly or indirectly from one client, then the PAYE/UIF/SDL needs to be paid by the client.

So the reality of this is that Labour Brokers, who have one big client will not be issued with an exemption certificate and the client will have to deduct the statutory requirements and pay them over to SARS pretty much the same as if they were employing the staff.

Changes in the tax rates to Companies also make a significant difference to whether a company uses Labour Brokers and the Minister has now suggested and proposed the introduction of new measures.  These measures include (but are not limited to), to discourage companies from providing services to a client, that converts income that would normally have been taxed as employment income into company income, as this is taxed at a lower rate.

The Minister has suggested that the term ‘employment company’ be used rather than ‘labour broker’, during the classification process.  This then means that:
a. The income from services rendered by ‘employment companies’ will be subjected to employees’ tax. At this point (when the article I have used was written), the rate was not specified.
b. The allowable deductions of an employment company would be limited to the monies paid to shareholders and/or members and/or other employees of the company.
c. The income of an employment company would be taxed at a rate of 35% and any dividends declared by the company would be subject to STC which would result the actual tax rate being 42.22%
Note: These tax rates, in all probability may have changed – please check with a SARS office to ascertain what the correct rate is for the current year, as this legislation came into effect from 1 August 2000.

Next time we will have a look at some of the other requirements for Labour Brokers particularly with respect to the CCMA requirements.

 Nikki is an Internal Auditor and Business Administration Specialist who can be contacted on 083 702 8849 or nikki@viljoenconsulting.co.za or http://www.viljoenconsulting.co.za