Clearing the air on
P.A.Y.E. payments

by Nigel Romano BSc., MSc., CA
Senior Partner- Ernst & Young (Trinidad)

Employers are often confused about whether or not PAYE should be deducted from the wages of their construction and maintainence workers

The Board of Inland Revenue (BIR) of Trinidad and Tobago recently advertised the formation of a special P.A.Y.E. Audit Section in order to monitor compliance with laws and regulations relating to P.A.Y.E. deductions and remittances to the BIR. Given the substantial penalties involved and the fact that employers are constantly being approached to pay individuals as contractors, we have briefly outlined the basic problems in considering whether the individual holds an "office" or "employment" and if he does whether the payments are subject to P.A.Y.E. Section 99 (1) of the Income Tax Act states that "... on the making of any payment...to any employee or the holder of any office of or on account of any emoluments arising or accruing in or derived from or received in Trinidad and Tobago during any year of income, tax shall .. be deducted or withheld by the person making the payment..." Employers therefore have an obligation to withhold P.A.Y.E. deductions from payments made to employees and office holders. If they fail to deduct or withhold the required amounts or to pay the amounts withheld by the 15th of the following month, they are guilty of an offence.

Unless the BIR directs otherwise, the employer is liable to pay the amount that should have been withheld PLUS a penalty of 50 percent of such amount or $40.00, whichever is greater, PLUS interest at 15 percent on the full amount. The Income Tax Act defines "employment" as "the position of an individual in the service of some other person" and "office" as "a position, not being an employment or place entitling the holder thereof to a fixed or ascertainable stipend or remuneration..." Typical examples of office holders are trustees and company directors. The very real difficulty is in deciding whether an individual is 'employed' or is carrying on a profession or vocation. Although this is a question of fact which has to be decided in every case there are certain factors which are indicative of the individual's status. The real, though not decisive, test in such circumstances is whether the individual is employed under a contract for services, which is an incident in the carrying on of a profession or vocation, or under a contract of service, involving the relationship of master and servant. The test of being an employee has been said to depend on whether the person is part and parcel of the organization.

Other factors to be taken into account include:

• The terms of the contract. If the contract enables control of both the work carried out and the manner in which it is carried out to be exercised by the person paying for that work to be done then it is a contract of employment notwithstanding an express term to the contrary.
• The nature of the activities - are they professional or vocational in nature? Does the individual in respect of the particular activity in question: (1) occupy an office; or (2) undertake an employment; or (3) does she merely render services in the course of the exercise or practice of her profession?
• Whether the person concerned is in business on his own account. Was the person engaged in a considerable number of different engagements for different people over a period of time?
• Does the person providing the service provide his own equipment, hire his own helpers,incur some degree of financial risk, or have an opportunity to profit from sound management in the performance of his task?

"Emoluments" means "all salary, wages, overtime, bonus, remuneration, perquisites including the value of board and lodging, stipend, commission or other amounts for services, directors' fees, retiring allowance or pension, arising or accruing in or derived from or received in Trinidad and Tobago and which are assessable to income tax, but does not include any salary or share of profits arising from a trade, business, profession or vocation carried on by any person either by himself or in partnership with any other person." This statutory definition is therefore wide enough to cover every kind of monetary reward received by an employee. There are very few exceptions to this rule. In arriving at a decision as to whether the arrangement constitutes a contract of service or a contract for services no single factor is decisive. All facts must be examined. Therefore, you should consult your professional advisers when making a decision about how such contractual arrangements are to be structured and before making payments without deductions of P.A.Y.E.

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