Independent Contractor vs Employee: The Tax Question

Should you hire an Independent Contractor or Employee?  One is not an alternative to the other by the standards laid out by the revenue department. It is therefore crucial that business owners correctly determine whether an individual providing services is an independent contractor or an employee. The general rule is that someone is an independent contractor if the person providing compensation has the right to control or direct only the result of the work and not what will be done and how it will be done. If however, the person paying has the right to not only control or direct the result of the work, but also what will be done and how it will be done, then the person supplying the service is an employee.

If the supplier of the service is an employee then the businessperson has the statutory obligation to withhold income tax in the form of PAYEE, National Insurance (NI), Education Tax (Ed Tax) and National Housing Trust (NHT) contributions at the appropriate rates, and pay over the deductions withheld, along with the matching amounts for NI, Ed Tax, NHT and the appropriate amounts for HEART (Human Employment And Resource Training). If the supplier is an independent contractor then that person is responsible to write his /her own demand for tax and pay over the appropriate amounts so written in addition to filing estimated tax. Don’t be too excited about independent contracting just yet for you may just be liable to a minimum tax.

Many business persons who have employees as well as independent contractors do not understand the rules for preparing a tax return. Some business persons prefer to use their time to concentrate on their core business so they contact an independent tax preparer like A&N Robinson & Associates or the Tax Office to prepare their tax returns. Soon all persons will be required to file a tax return therefore whether you are an independent contractor or an employee, the cards presage that you too will soon be filing a tax return.

A business person cannot decide to convert his/her staff to independent contractors without first contemplating the general rule posited above. For if the TAJ (Tax Administration Jamaica) rules that a contract of service ostensibly with an employee, instead of a contract for service presumably with an independent contractor exists,  the business person will become liable for all statutory deductions associated with a contract of service or an employee status.

Contributor: Neville Robinson is a graduate of Mico and a Fellow Chartered Accountant in public practice with the Institute of Chartered Accountants of Jamaica since 1985. Neville holds the B.Sc. honours degree in Management Studies and a Master’s degree in Accounting. Neville is a partner in the accounting firm A&N Robinson & Associates.

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