1. THE ORGANISATION HIRES AN EMPLOYEE
The indirect costs are UIF, SDL, Trustee Duties, Medical and Pension employer contributions, Payroll, HR costs, CCMA, Retrenchment, Sick and Vacation Leave, Training, Management overhead, future compulsory national health and retirement funds, entry costs, contract costs, compensation and Incentives issues and management. Some of the above also use up extremely valuable top management resources. The direct costs are a basic salary, travel, cell phone, car allowance, fund contributions and other direct payroll costs. This option remains costly and inflexible. There’s mostly little employee choice as to how he retires or provides for medical.
The net reward to the employee can be surprisingly low. The gross cost to the employer is surprisingly high.
2. THE ORGANISATION HIRES AN INDEPENDENT CONTRACTOR
There are strict guidelines imposed by SARS (employee vs. independent contractor) and organizations run the risk of an independent contractor being classed as employee in terms of SARS Practice Notes and PAYE audits. Thus the onus is placed squarely on the employer. The independent contractor if trading under a legal entity may be attacked as a personal service company as well. If SARS undertook a PAYE Audit: Increased costs are incurred, there may be
penalty payments to SARS, large PAYE amounts due, with interest payments on the outstanding amount and, these can be levied over many tax years – and come to surprisingly uncomfortably large amounts and there Is also the threat of an integrated SARS audit to follow (VAT, Income Tax, PAYE, etc.)
3. THE ORGANISATION HIRES A CONSULTING ORGANISATION
This inevitably results in high costs and inflexible contracts. There are also often expensive contract cancellation costs or exit clauses. Needless to say this option is both very costly and inflexible, and more expensive than hiring employees directly.
