You've agreed a rate with someone, they've agreed to invoice you monthly, and neither of you wants the admin of putting them on payroll. So you pay the full amount and everyone is happy.
Sometimes that's correct. Often it isn't — and when it isn't, the bill lands on you, not on them.
Why it matters which one they are
If SARS reclassifies someone as an employee, you owe:
- the PAYE you should have withheld, for every month you didn't
- penalties and interest on top
- possibly UIF and SDL as well
You generally can't recover that from the worker after the fact — you already paid them gross. And if the CCMA gets involved, an employee has unfair-dismissal protection and accrued BCEA leave you never provided for.
The saving was never real. It was a deferred bill with interest on it.
The statutory test comes first
Under the Fourth Schedule to the Income Tax Act, paragraph 1, a person is not an independent contractor if both of these are true:
1. services are rendered mainly at your premises, and 2. they are subject to your control or supervision as to the manner of work or the hours
Both true → PAYE must be withheld. This isn't a factor to weigh. It's a definition, and the contract wording doesn't change it.
Then the dominant impression
If the statutory test doesn't settle it, SARS applies the common-law "dominant impression" test (Interpretation Note 17). Roughly: is this person running their own business, or working in yours?
Pointing to contractor: they carry their own risk, supply their own tools, can send a substitute, have other clients, are paid for a result rather than for time, can profit from doing it faster.
Pointing to employee: you set the hours, you supply the equipment, they work only for you, they're part of your team structure, they're paid for time, they can't subcontract.
The one most people don't know about
LRA s200A and BCEA s83A create a presumption of employment. For anyone earning below the BCEA earnings threshold (updated annually — check the current figure), if any one of these is present, they are presumed an employee:
- you control the manner or hours of their work
- they form part of your organisation
- they've worked an average of more than 40 hours a month over the last three months
- they are economically dependent on you
- you provide their tools or equipment
- they work only for you
The burden reverses. You have to prove they're not an employee.
Look at that list against a "full-time contractor" — someone who works for you five days a week, only for you, on your site, with your equipment. That trips five of the six. There is no realistic argument that they're an independent contractor.
Two special cases
Personal service providers. If you pay a company or trust through which a connected person renders services, and that entity gets 80% or more of its income from you — or the person would be your employee if they contracted directly — it's a personal service provider. You must withhold PAYE at a flat 28% (company) or 45% (trust).
Labour brokers. A labour broker without a valid IRP30 exemption certificate must have full PAYE withheld. Ask for the certificate, check the expiry, and keep a copy. Without it on file, the liability is yours.
What to actually do
If they pass the test — they invoice you, you capture it as a bill, you pay in full. No PAYE, no UIF, no SDL. Claim the input VAT if they're VAT-registered.
If they fail — they go on payroll. PAYE withheld, and the IRP5 reports the income under source code 3616 (independent contractor) rather than 3601, so the classification is on the record.
If it's a fixed-term employee — that's an ordinary employee with an end date. Full PAYE, UIF, SDL, IRP5 3601, and leave accrues. Note also that under LRA s198B, a fixed term running beyond three months for someone under the earnings threshold is deemed indefinite unless you can justify the term.
Write down why
The single most useful thing you can do takes ten minutes: record the test, your conclusion, your reasons, and the date.
Applying the test isn't hard. Proving in 2029 that you applied it in 2026 — with reasoning, not just a conclusion — is what actually answers a reassessment. A signed contractor agreement is not that. It's the thing SARS looks past.
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