Employee or Independent Contractor? SARS & Labour Law Checker (South Africa)

Yes, and it happens constantly. They are different statutes asking different questions. The Fourth Schedule to the Income Tax Act decides whether PAYE comes off. The Labour Relations Act decides whether the person can take you to the CCMA for unfair dismissal. A worker can be genuinely independent at common law, still have employees' tax withheld because a statutory test catches them, and still be presumed an employee under section 200A. Winning the tax argument does not protect you from the labour one.

Normally no. A genuine independent contractor invoices the client, receives the full amount, registers as a provisional taxpayer and pays tax twice a year on an IRP6 instead. But there is a large exception that catches a lot of people: if either of the SARS statutory tests applies, the client must deduct employees' tax from the payments even though the person is running their own business. That is the single most common surprise in this area. The worker is still an independent contractor, they simply have PAYE withheld, and the IRP5 must then be coded 3616 so their deductions survive.

They are two different rules and they are widely confused, including in articles that should know better. The 50% figure is about PREMISES: the first statutory test asks whether the services are required to be performed mainly, meaning more than 50% of the time, at the client's premises. It has nothing to do with how much of your income comes from that client. The 80% figure is about INCOME CONCENTRATION, and it only applies to a company or trust under the personal service provider rules (and to a labour broker seeking an exemption certificate), where more than 80% of service income coming from one client is a trigger on its own. If you are an individual invoicing in your own name, there is no 80% income rule that makes you an employee. Getting this backwards is one of the most common mistakes on this topic.

No, and this catches people out. The tests are applied per engagement, not to you as a person. You assess each client relationship separately, so you can genuinely be an independent contractor to one client and an employee of another at the same time. One client having the right to control your hours does not contaminate your other contracts, and equally, having five other clients does not automatically rescue a sixth relationship that looks like employment on its own facts. Run this checker once per client.

It depends entirely on section 23(m), which is driven by the IRP5 code. If you are independent at common law, whether or not PAYE was withheld, the code should be 3616 and you may deduct the genuine expenses you incurred in producing your income, so equipment, a home office, travel, data, professional fees. If you are an employee at common law, the code is 3601 and section 23(m) limits you to a short list, essentially pension and retirement annuity contributions and a few specific items, with ordinary business expenses disallowed entirely. This is why the code matters so much and why it is worth checking the IRP5 you are handed rather than assuming it is right.

Yes, and this is the risk most employers underestimate. If the CCMA or a court finds the person was really an employee, they get the full suite of protections: unfair dismissal, notice, leave, and the right to bring unfair labour practice claims. The contract calling them a contractor does not settle it, since the CCMA looks at the real relationship using the control, integration and dominant impression tests. Where the worker earns at or below the BCEA earnings threshold, section 200A goes further and puts the onus on the employer to disprove employment. Terminating a long-running contractor by simply not renewing them is exactly the moment this tends to get tested.

The first deems a person NOT to be carrying on a trade independently if both parts are true: the services are required to be performed mainly (more than 50%) at the client's premises, AND the worker is subject to anyone's control or supervision as to the manner of the work or the hours. Either control or supervision is enough, and it only has to exist as a contractual right, it does not have to be used. The second test deems a person TO be carrying on a trade independently if they employ three or more full-time employees, all year, none of them connected persons. The second test overrides the first, and it overrides the common law position too.

It is one of the most expensive small differences in South African payroll. Code 3601 is ordinary remuneration for an employee. Code 3616 is remuneration paid to someone who is an independent contractor at common law but who still had employees' tax withheld because a statutory test caught them. The code decides whether section 23(m) applies. Under 3601 it does, and it limits the worker's deductions to essentially nothing beyond pension, retirement annuity and a few specific items. Under 3616 it does not, and the worker keeps the right to deduct genuine business expenses. SARS's own Interpretation Note 17 works through exactly this case.

Usually it makes it worse. A company or trust whose service is rendered personally by a connected person is a personal service provider if any one of three triggers is met: that person would be an employee if they contracted directly, or the duties are performed mainly at the client's premises under its control, or more than 80% of the entity's service income comes from one client. A personal service provider has employees' tax withheld from every invoice at 27% (a company) or 45% (a trust), loses almost all its ordinary business deductions, and cannot use the small business corporation rates. The only clean way out is the three-employee exclusion, which is stricter here than for individuals: those employees may not be shareholders, or the settlor or a beneficiary of the trust, or connected persons in relation to any of them.

Paragraph 2(1A) of the Fourth Schedule lets a client stop withholding where the 80% one-client rule is the ONLY reason the entity is a personal service provider, if the entity gives the client an affidavit or solemn declaration to that effect and the client relies on it in good faith. It is narrow relief. It does nothing if the person would also be an employee if they contracted directly, or if they work mainly at the client's premises under its control, and it does not change the entity's own tax position. It also needs to be current, relying on a stale affidavit is not good faith.

It is the common law test that applies once the statutory tests fall away. SARS publishes a grid in Annexure C of Interpretation Note 17 setting out the indicators in three weight tiers: near-conclusive (which go to whether the client bought the worker's productive capacity or bought a result), persuasive (which measure the degree and purpose of control), and relevant (labels, clauses, compliance and economic circumstances, which SARS warns are the easiest to dress up). You weigh them all and form an overall impression. SARS is explicit that it is not a checklist and no single indicator decides it.

Because counting them gives the wrong answer. SARS groups the indicators into tiers precisely because they do not carry equal weight. A relationship where all the near-conclusive indicators point to employment can still show more contractor-looking answers on the lower tiers, since those are the ones a contract can be written to look good on. This tool counts a near-conclusive indicator five times as heavily as a relevant one, and it flags it explicitly when your near-conclusive answers point the opposite way to your overall score, because that is the pattern a naive checklist scores wrongly.

Section 200A of the Labour Relations Act says that if any ONE of seven factors is present, the worker is presumed to be an employee until the employer proves otherwise, whatever the contract calls them. The factors are control over the manner of work, control over hours, forming part of the organisation, averaging at least 40 hours a month over the last three months, economic dependence, being given tools of trade, and working for only that one person. The practical effect is that the onus shifts to the employer at the CCMA.

No. It is only available to workers earning at or below the BCEA earnings threshold, which is R269,600.90 a year from 1 May 2026. Above that the presumption cannot be used, but that is not a finding that the person is a contractor. It just means the worker has to prove employment the ordinary way, on the same common law factors, rather than the employer having to disprove it. The Minister re-announces this threshold roughly every year, so confirm the current figure.

The employer is liable for the employees' tax it should have deducted and never did, plus a flat 10% late payment penalty under paragraph 6(1) of the Fourth Schedule, plus interest at SARS's prescribed rate from each date the money should have been paid, plus unpaid UIF on both sides. Understatement penalties can be added where SARS finds the classification was not a bona fide error. The employer has a right to recover the tax itself from the worker, but the penalty and the interest are the employer's own, and in practice recovering from a worker who has already left is difficult. Separately, a misclassified worker who is found to be an employee at the CCMA gets unfair dismissal protection, notice, leave and UIF.

No. Every one of these tests looks at the substance of the relationship, not its label. SARS's grid puts labels and clauses in its lowest weight tier and warns that they are the easiest to dress up. Section 200A applies 'regardless of the form of the contract'. A well-drafted contract helps only to the extent that it reflects, and the parties actually follow, a genuinely independent arrangement.

No. It is a structured way to work through the same tests SARS and the CCMA use, built from the published sources, so you can see where you stand and what specifically is driving the answer. It cannot weigh your facts in context the way an auditor, a tax practitioner or a commissioner will, and it deliberately does not ask about everything that could matter. Treat a borderline result as a reason to get advice, not as a clearance.