CONTRACTS
Persons may enter into contracts of varying kinds in order to render services. These include:
- Contract of Service
- Contract for Service
- Contract for personal service
Once a Contract of Service is identified, then this means that the contract is one of employment. The amounts paid under this contract are emoluments and therefore all statutory deductions are to be made e.g. Income Tax (tax); Education Tax; both employees’ and employers’ contributions, NHT, and NIS.
Under this contract arrangement a person (employee) is under an obligation to render personal services to another person (employer) and the: -
- Individual (employee) is subject to the supervision, direction and control of another person.
- Individual (employee) holds an integral position within the organization e.g. Accountant/Managing Director
- Individual (employee) does not conduct business on his account.
- Contract is a legally binding exclusive service agreement between the performer and payer.
- Tools, materials and work place are provided by payer.
- Individual receives a payment of a fixed salary and reimbursement of the performer’s expenses by the payer.
- Performer receives vacation leave and any other staff related benefit.
- Performer is required to file regular, oral or written status reports with the payer.
This contract represents an independent (business) and the individual is therefore responsible for his/her returns and payments under the self-assessment system, this applies to:
- An individual who is not subject to the supervision, direction and control of another person.
- An individual who does not hold an integral position within the organization.
- Individual who conducts business on his own account.
- The performer’s right to provide services to more than one person at a time with a separate contract between the performer and each payer.
- Performer provides his own equipment.
- Payment of a fixed amount or commission for the complete job rather than periodic payments.
- Performer assumes his/her own financial risk and has responsibilities for his/her investment and management.
The definition of “Personal Services” includes services of a professional, clerical, Technical Administrative or Managerial nature”.
Section 5(1) (c) (ix) of the Income Tax Act relates to contract for services with certain classification and only accounts for the withholding of Income tax and therefore does not apply to his statutory deductions. The other statutory deductions would still be treated under the self- employed system. This can only be applied when personal services are rendered, and what would not otherwise be seen as emoluments are deemed to be emoluments.
- Since year 2001 if a person supplies personal services such personal services are subject to the income tax being deducted by the payer.
The question of whether Education Tax is to be deducted from payments for this type of service now remains.
The definition of ‘employment’ under the Education Tax Act, First Schedule is as follows: -
“Employment in Jamaica under any contract of Service or apprenticeship written or oral and whether express or implied”.
Based on this interpretation of the Education Tax Act, the contract income of persons rendering personal services is subject to Education Tax, but the tax should not be withheld under Section 5(1) (c) (ix). The employee who receives this income must make his return of Education Tax and make payment to Tax Administration Jamaica. (Please note that no matching payment is due from the deemed employer, that is, the person giving the contract).
PAYE applies to casual labourers in the same way as it does to regular employees. The income paid should be recorded and the threshold applied accordingly. All relevant statutory deductions should be made where applicable.
High school students (irrespective of age), full-time tertiary students and persons participating in youth service programs, should be given the cumulative threshold (nil rate) as at the date of employment, (if it is ascertained such persons were not employed during the year). This does not apply to students doing evenings or part-time work outside the normal holiday times.
(Employers need to request that the employee produces coding from TAJ. If this is not received, emoluments are to be taxed without the application of the threshold.)
For additional information, please use any of the following to contact our firm:
Head Office :
Unit 34,Winchester BusinessCentre 15 Hope Road,
Kingston 10
Tel : 876-9084007
Fax : 876-7540380
Branch Offices:
Montego Bay-Shop EU 6, Whitter Village,Ironshore, St. JamesTel : 876-9533793/953-8486
Fax: 953-3058
Mandeville-Shop L1/K1,Grove Court Plaza,Manchester Tel : 962-6369
Fax: 754-0380
Ocho Rios-101B Main Street,
St. Ann
Tel : 9748772
Fax:876-974-5373
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