Tax and SARS knowledge base
When PAYE must be deducted from payments to a labour broker
When must a labour broker have PAYE deducted from payments?
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Direct answer
A business paying a labour broker must deduct PAYE unless the labour broker holds a valid SARS IRP30 exemption certificate, or a tax directive specifies the amount to withhold. SARS describes a labour broker as a natural person who, for reward, provides or procures workers for a client and pays those workers. Where no PAYE is deducted because a certificate applies, the payer must hold a certified copy of the certificate for inspection.
Do not decide this from an invoice heading alone. A business called an agency, contractor or staffing company may not meet the technical definition. Equally, a genuine labour broker does not avoid PAYE merely by stating that it has a certificate. The certificate must be valid for the payment period and retained properly.
What this means in practice
The labour-broker rule is about an arrangement that provides or procures workers, rather than simply delivering a result or service. SARS describes the usual three parties as the client, labour broker and workers. The client pays the labour broker, and the labour broker pays the workers.
If a valid exemption certificate is in place, the client does not deduct PAYE from its payment to the labour broker. SARS says that the certificate is generally valid from issue until the end of the tax year. If there is no valid certificate, PAYE must be withheld using the applicable deduction tables. If SARS has issued a directive, withhold according to that directive instead.
The cost of getting this wrong can be significant. The payer should build a certificate check into its supplier-onboarding process, rather than discover the issue only at year-end when the IRP5 information is prepared.
Step-by-step
- Read the contract. Establish whether the supplier is being paid to provide or procure workers who will perform work for the client, or whether it is delivering an independent service or result. Record the actual responsibilities for supervision, payment and worker supply.
- Confirm the recipient. SARS's labour-broker description in the PAYE guide is a natural person. Do not automatically apply this route because a supplier uses a labour-related trading name. If the facts are mixed, get a classification review before payment.
- Request the IRP30 or directive before payment. Obtain a clear, certified copy of the exemption certificate if the business plans not to deduct PAYE. Check the labour broker reference, expiry, printing and whether the certificate appears altered. SARS says the original certificate must be held by the labour broker.
- Keep the certified copy. The payer that does not deduct PAYE must retain it for SARS inspection. Link the certificate to the supplier record and payment period. A copy that has expired or does not match the recipient is not sufficient evidence.
- Withhold where required. Without a valid certificate, use the applicable deduction tables. Where there is a tax directive, follow its instructions. Pay the resulting PAYE through the normal employer process and retain the calculation.
- Report and reconcile. SARS's guide identifies different IRP5 treatment for a labour broker with and without an exemption certificate. Confirm current payroll coding and reconcile the payment and withholding before submitting the EMP501.
Documents and records to keep
Retain the signed contract, work scope, worker schedules, invoice and payment evidence. Keep the IRP30 certified copy or tax directive, the certificate validation notes, payroll calculation and IRP5 record. Keep proof of any communication about the certificate's renewal, because it normally expires at the end of a tax year.
The file should make clear why the business classified the arrangement as labour broking and why it did, or did not, deduct PAYE. Retain records for the applicable SARS period and longer where a verification or dispute is ongoing.
Important limits and exceptions
This is not a broad "contractor PAYE" rule. Independent-contractor classification has its own tests, and the same arrangement should not be described differently in contracts, invoices and payroll records. Do not use a labour-broker certificate to avoid examining the actual worker-supply arrangement.
An exemption certificate is not permanent. SARS says it is valid from issue until the end of the tax year, subject to its conditions. Check the version and period every time the supplier arrangement is renewed or a new tax year begins.
When to get tailored advice
Get tailored advice where a supplier is a company or trust, workers are controlled at the client site, the contract includes both supplied workers and deliverables, or the certificate cannot be validated. A review is also prudent where the payer has historical payments without PAYE or a pending SARS audit.
TaxProof can help organise contracts, certificate evidence and payroll records. We cannot classify a complex worker arrangement or certify that a withholding position will be accepted by SARS.