Page 265 - SAIT Compendium 2016 Volume2

IN 17 (3) Income Tax acT: InTeRPReTaTIon noTes IN 17 (3)
Annexure C
The concept of ‘independent contractor’ at common law
An independent contractor, as envisaged in this Note, is a colloquial term for a small-time sub-contractor. An independent contractor is merely another word for ‘entrepreneur’, or perhaps, ‘employer’ (or potential employer). The word ‘independent’ in the concept ‘independent contractor’ refers to independence in respect of the employer’s organisation, as well as in respect of the employer’s control. An independent contractor must be distinguished from its counterpart, the employee. Legally, the two terms (independent contractor and employee) are mutually exclusive and are direct opposites. Many pieces of legislation (the Income Tax Act, the Compensation for Occupational Injuries and Diseases Act, the Unemployment Insurance Act), and many discrete bodies of common law (delict, vicarious liability, employment law), are based on this notion of mutual exclusivity. However, this notion of mutual exclusivity is itself no longer easily reconcilable with social and economic reality due to technological advances and global integration. This Annexure attempts to assist assessors to determine where to draw the line in each particular case.
The Fourth Schedule statutory concept of an ‘independent trader’ is similar to the common law concept of an ‘independent contractor’. The main difference between the two terms is that the de nition of the term ‘remuneration’, through exclusionary sub-paragraphs (ii)(aa), mentions two of many possible indicators as a strict test to deem common law independent traders not to be independent for tax purposes.
South African law traditionally refers to the independent contractor contract as a contract of locatio conductio operis. Roman labour law used the term locatio conductio to include three types of transactions, namely—
(i) locatio conductio rei, which is the letting and hiring of things (hire-purchase or lease contract);
(ii) locatio conductio operarum, which is the letting and hiring of services (the master/servant or employer/employee
contract); or
(iii) locatio conductio operis, which is the letting and hiring of work (independent contractor contract).
It is the concept of locatio conductio operis, and the distinction from locatio conductio operarum that need to be studied. The differences between the two concepts, as derived from South African common law, will supply the guiding principles needed to determine whether or not a person is in receipt of ‘remuneration’ as de ned in the Fourth Schedule. Before turning to the locatio conductio operis (the contract for work or services, that is, the independent contractor), it is necessary to analyse the term locatio conductio operarum (the contract of service, that is, the employer/employee) more speci cally.
(i) The contract of service is a bilateral, consensual contract between two parties agreeing typically to at least two things, namely, the services to be rendered and the remuneration to be paid. The focus is on effort and personal service (operae suae, roughly meaning ‘personal service’) to be rendered and not on a speci c result (opus, roughly meaning ‘a work’ or ‘a product’) to be achieved. The employer (in this case the conductor, which roughly means ‘the controller’ or the one who brings together) could avail him or herself of the actio conducti to enforce due performance of the services promised, while the employee (in this case the locator, which roughly means ‘the person placing or locating his or her productive capacity in the market’ or ‘for making his or her services available’) can rely on the actio locati to enforce payment of the promised remuneration. The question of risk and liability plays an important distinguishing role and was, in Roman law, settled in a nely balanced manner. As far as risk is concerned, the question is whether counter-performance (in this case payment of the remuneration) still has to be made even though rendering of the performance has become impossible. An employee does not, as a rule, lose his or her claim to remuneration, except if it is due to the employee’s fault. It follows that a person who is party to a contract of service will, generally, continue to be entitled to claim remuneration from his or her employer even when he or she cannot, by no fault of his or her own, render the service to the employer. This aspect can, naturally, be changed by way of a provision in the contract (for example, limiting sick leave) or by retrenchment.
(ii) The term locatio conductio operis (contract for work or services, that is, the independent contractor), on the other hand, under Roman law, constituted a contract in terms of which it was not the services as such which were the object of the contract, but the result as a whole. One person undertakes to perform or execute a particular piece of work, and he or she promises to produce a certain speci c result. This person is called the conductor operis (meaning contractor of works, which roughly means the ‘controller of works’ or the ‘controller of results’). The person commissioning the work (the customer or client) is the locator (meaning ‘the person placing or locating a job on the market’) who places out the work to be done. The decisive feature of contracts for work or services under Roman law was that the customer was not interested in the personal services or the labour (productive capacity) as such, but in the product or result of labour. The conductor was responsible for producing that result which he or she had contracted to produce, whether or not he or she made use of other persons (his or her own employees) to do the work, and whether or not he or she did so personally. In other words, the conductor is responsible for the success of the work. He or she has to face the problem of liability for defects under the contract of work. He or she, generally, would not be under the control and supervision of the locator (the customer or client).
Annexure D
The current common law position in South Africa
The historical development of employee/independent contractor tests
Over time, the courts have developed a variety of tests to assist in determining the object of an employment contract, but all of them may be divided into two main categories:
1. The ‘control’ test
As a single indicator test, control used to be conclusive. Employment used to be based more transparently on obvious class distinctions and hierarchies, and was described as a master/servant relationship. Control was crude, and therefore an obvious, conclusive criterion, focusing on the power to dismiss, to supervise or control the manner of working, or to control the productive capacity itself.
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