Original Research

Non-executive directors: Employees or independent contractors for both income tax and employees’ tax purposes?

Linda van Schalkwyk, Rudie Nel
Journal of Economic and Financial Sciences | Vol 6, No 2 | a267 | DOI: https://doi.org/10.4102/jef.v6i2.267 | © 2018 Linda van Schalkwyk, Rudie Nel | This work is licensed under CC Attribution 4.0
Submitted: 27 June 2018 | Published: 31 July 2013

About the author(s)

Linda van Schalkwyk, Department of Accounting, Stellenbosch University, South Africa
Rudie Nel, Department of Accounting, Stellenbosch University, South Africa

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Abstract

The concept ‘independent contractor’ is one of the more contentious concepts contained in the Fourth Schedule to the Income Tax Act 58 of 1962, as amended. The classification of a person rendering services as either an ‘employee’ or an ‘independent contractor’ is relevant for both income tax and employees’ tax purposes. The objective of this article is to determine whether non-executive directors (both resident and non-resident) are employees or independent contractors for both purposes, respectively. A comprehensive literature review was done in which the meaning of the concepts ‘non-executive director’ and ‘independent contractor’ was discussed in order to gather information needed for the classification. The statutory and common law tests were then applied to determine the classification of non-executive directors as independent contractors. The conclusion reached is that resident non-executive directors could qualify as ‘independent contractors’ for employees’ tax and income tax purposes. Non-resident non-executive directors of companies are ‘employees’ for employees’ tax purposes and ‘independent contractors’ for income tax purposes.

Keywords

employee; employees’ tax; independent contractor; non-executive director; remuneration

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