Marvelous Tapera 
With the advent of the new normal, where systems and the way of working are constantly changing, most individuals are opting for self-employment so as to service a larger number of clientele as well as pay lesser tax.
This is particularly for services such as graphic designing, Information and Technology (IT), bookkeeping and accounting, only to mention a few.
For companies on the other hand, the attraction of hiring an independent contractor is the reduced costs in: expenses, payroll, benefits, and other overheads.
Lower overheads mean less stress to bring in new business revenue to cover costs. One of the most consistently challenging aspects of contracting in Zimbabwe is complying with the country’s tax system.
There are many nuances and exceptions in the laws, tests and definitions on what differentiates independent contractors from employees.
There is a great need to establish the business relationship that exists between your business and the person providing the service.
The existence of a contract in itself is not enough to conclude the nature of the relationship. The substance over form principle or doctrine allows the Zimbabwe Revenue Authority to ignore the legal form and examine its actual substance, with the goal of preventing an artificial structure from being used to avoid paying taxes.
Misclassifying an employee as an independent contractor can have serious tax ramifications.
In defining an employee, the Income Tax Act heavily relies on the quantum of the remuneration, but other jurisdictions have gone further to look at other considerations to clearly lay bare the distinction between an employee and an independent contractor.
The statute and common law then serve as references in determining the difference between the two. The statutory tests make use of the Income Tax Act and the Labour Act. The common law tests encompasses the various tests that have been established by the courts.
The tests adapted by the courts to decide if an individual has the status of an employee include the Control tests, organisation test, Multiple factor test and Mutuality obligation test. The control test refers to the level of control an employer has over his\her employees. This control arises from the division and enforcements of jobs, time and work time.
The test was adopted from the definition given by Lordship Bramwell B in the case of Yewens v Noake. In the case of Walker v Crystal Palace, a football player as a skilled person was given more freedom as to how to perform his job, but yet he was under the control of his master as he was under the direction of the football club and direction of his captain all the times.
Also his method of play, discipline and training were all controlled under his master and hence, he was an employee. There was some weakness in this test as it has become less effective because in the modern industrial set up, there are several specialists who monopolise a particular skill and the degree of control has become loose.
The degree of control over employees has become lessened and this test may be found to be unsuitable in some instances.
The organisation test, tests whether employees are an essential part of the organisation. If the employee is integrated full into the employer’s business then he is an employee or is under the contract of service.
Lord Denning in the case of Jordon & Harrison v MacDonald & Evans suggested that an individual is an employee if his work is an integral part of business even though the employer has no direct control over his employee.
The multiple factor tests also known as the dominance test looks at the entire situation and much wider than the control and integration test. In the case of Short v Henderson (1946), four criteria were used to ascertain whether a worker is an employee or otherwise.
They are the power of choice, wages or remuneration, the right of suspension and dismissal and also right to control. In the case of Mirren v Swinton Pendelbury Borough Council ( 1965) the factors looked into by the courts included number of working hours, the normal working hours, geographical limitation of work, the skills and also the perception of the society as regards to the methods of appointment and termination and types of wages.
There cannot be a contract of employment if there are no mutual obligations. Once there is an obligation by the employee she or he is entitled to pay, holiday pay and sick leave. In the case of Carmicheal v National Power Plc, there was no mutuality of obligation on the casual workers who were power station tour guides.
When they were offered work, they were asked to sign a statement stating that they were offered an offer of employment as casual as required.
The court held that this means they are not employees but are independent contractors owing to their position as casual as required.
In conclusion, the classification of workers remains a complicated subject. While the consideration of tax consequences of the classification are an integral part in decision of the business, there are other legal considerations that have to be taken into account in deciding whether to classify a worker is an independent contractor or an employee.
Businesses are advised to approach their legal counsels and tax consultants in making such decisions especially in the advent of social distance arising from effects of Covid 19 pandemic.
● Tapera is the founder of Tax Matrix (Pvt) Ltd and the chief executive of Matrix Tax School. He writes in his personal capacity. Meanwhile, Matrix Tax School will be hosting its “Managing VAT Compliance-Practical Considerations” Webinar Seminar on March 17, 2021.
