If you’re currently employed in a permanent position, you may look at the contractors in your organisation with a degree of envy. They may earn more than you do, and they seem immune to the office politics. You may be thinking of moving into contracting yourself. Contracting/consulting can be very rewarding, but you need to be clear about your motives and the benefits you expect to realise from a career as a self-employed professional. Tax rules have recently been tightened around the classification of contractors (see , so it’s even more important than ever to become a contingent worker for the right reasons.

Contracting is often seen as a short-term option after retrenchment or when considering a  change of employer, but it is not a temporary solution. It is a conscious decision to change your career to a completely different employment model, that of an independent entrepreneur. It is a lifestyle choice, not just an alternative work option.

What can you offer as a contractor?

Some skills are more in demand than others, and some lend themselves to contracting better than others. According to leading South African careers website CareerJunction, the three most in-demand skills in the country at the moment are software developers, middle/department managers and representatives or sales consultants. Software development remains the most sought-after skill set on CareerJunction. And software developers are very often contractors, so if this is your profession, you are in luck.

Other positions commonly contracted out by employers, according to Monster.com, are database administrator, systems administrator and web developer. If you work in the field of IT or engineering, you are well placed to consider becoming an independent contractor, but there are independent professionals in other fields too, such as human relations, communications, finance, to name but a few.

Five reasons to consider contracting

Having determined you have a marketable skill, and there are opportunities for contingent work in your field, what are the benefits of contracting? It is important to weigh these against what you are giving up, and be very honest with yourself about your priorities and your personality. Contracting is not for everybody. If you like or need the security of a regular income and prefer to know that your retirement and medical aid contributions are always covered…if the prospect of potential gaps between contracts makes you nervous…then contracting is probably not an option that suits your temperament. If you like to plan your holidays well in advance, and take off knowing that someone has your back while you are on leave, you may not enjoy the “always on” nature of independent contracting.

If, however, you like the idea of being your own boss, of having some say over the work you take on, and of potentially being able to earn more than you currently do in fixed employment, then the contracting lifestyle may be for you. Let’s look at some of the tangible…and intangible…benefits.

Flexibility

Contracting gives you the flexibility to work around your personal circumstances. You are free to choose when and where you work, and to take on the assignments that appeal to you, turning down those that hold less allure. The flexible nature of contracting allows you to take holidays when you like and not have to fit into a team schedule, though that may be more of an ideal than reality. Depending on the contract, you may need to be on site until project completion. However, you may then choose to take time off between contracts. Overall, contractors have greater control over work/life balance.

Experience

Contracting can broaden your experience and diversify your skills. Working across a wide range of companies, industries and assignments will allow you to learn new skills and gain exposure to different management styles and business processes. If you decide the contracting life is not for you, you have an enhanced CV to offer the next permanent employer. And, if you remain a contractor, with each contract you complete your skill set and experience increases, putting you more in demand as an independent professional.

Variety

One of the biggest perks of contracting is variety. It is hard to get bored when your working environment and your activities change regularly. You may work in completely different industries from one assignment to the next, even if the job you are doing is similar. Moving from one organisation to another will expose you to different cultures, which brings its own sense of variety.

Pay and conditions

It is no secret that contract workers get paid more than permanent employees in many sectors. It is not unheard of for independent contractors to earn up to twice as much as their permanent counterparts, with the added bonus of overtime pay for every extra hour worked. However, this does need to be balanced against the absence of paid sick leave or annual leave. It is very important to remember that the rate charged by the contractor is total cost to company. Many new contractors overlook the fact that they will have to pay their own medical aid, retirement fund and annual and sick leave out of this rate. Employers may balk at the rates contractors quote. They forget that they are paying for results, not attendance. They are not paying when the contractor is sick or on leave. They only pay for productive time. As a new contractor, the market rates can look very enticing, but it is important to factor all these costs in when calculating your total earning potential.

Be your own boss

For some, this is the biggest attraction of contracting. For the entrepreneurially minded, or those who simply don’t like being told what to do, it can be liberating to run your own business as an independent professional. But be realistic about what this means. You may be spared the annual performance appraisal but you will still be expected to contribute to the achievement of objectives and have to follow a work plan. Often, the motive behind contracting out certain functions or activities is the single-minded task focus and dedication to results that an independent contractor brings to the organisation or department. If a new system needs to be installed or a product launched, you will most certainly have to take instructions from the project leader or department head responsible for delivery. However, most contractors report a significant difference in attitude towards them compared to the permanent employees; they feel their contribution is more highly valued and they are treated as experts, rather than subordinates. And of course, if you don’t like the culture, once the project is complete you are free to move on, and you can decline future offers from that employer. This is what it means to be your own boss as a contractor.

As most contracts are short-term, i.e. between three and 12 months, contracting can seem insecure. But, paradoxically, the life of the independent contractor can be more secure. If you have skills that are in high demand, it is unlikely that you will be out of work, and you may be in a position to choose between a variety of offers, unlike your permanent colleagues, who must work on whatever their boss decrees. Many functions and roles that used to be filled by permanent employees are now being contracted out, to save overheads, so ironically you may be more secure as a professional than as an employee.

 

Contact us

If you’d like to have a no-obligation conversation about your prospects as a contractor and your personal earning potential, contact Highveld on 012 367 5600 or info@highveld.co.za.  We’ll help you decide if the contracting lifestyle is for you, and, if it is, we’ll get you started and on your way to a rewarding and lucrative career as an independent professional.

Independent contractors have long known the challenges of correct employment classification, and the requirement to prove to the revenue authorities that their status is truly “independent”, and not pseudo-independent while being employed in all but title. While arguably a contractor working for one client for an extended period of time could be said to be more “employed” than “independent”, most contractors have been conscientious in making sure they pass the necessary tests of independence.

Latest position from SARS

However, the South African Revenue Service recently clarified its stance on the taxation of so-called Independent Contractors and/or Consultants. In its Interpretation Note 17 of 14 March 2018, it outlines stringent conditions for the taxation of Independent Contractors. In essence, the tests are so onerous that in most instances companies are obliged to deduct PAYE and to treat “Independent Contractors” as employees for income tax purposes.

SARS has adopted a “substance over form” approach. What this means is that even if an Independent Contractor passes the statutory test, this is over-ridden by the common law test. In other words, even if the contractual arrangements are that of an Independent Contractor, if the true nature of the work approximates the definition of an “employee”, then employers are required to deduct PAYE as they would for a standard employee.

In adopting a “substance over form” approach, SARS has applied both “control” and “intuitive” tests.

Tests of independence

If the Independent Contractor works under the supervision of the company and the company is therefore liable for the actions of that person (“vicarious liability”), then the contractor is not seen as independent – the “control test”.

The “intuitive test” is an arguably subjective evaluation of status, based on how an average member of the public would classify the worker – if someone would be described as an employee, then that person is not an Independent Contractor.

The “organisation test” assesses how integral the person is to the functioning of the company. If the role is seen as critical, rather than incidental, then that individual is not independent.

Finally, the “dominant impression” test measures the contractor against a range of criteria; failure to meet any of them may mean the person is regarded as an employee and therefore must be taxed as such. The “dominant impression” test is exhaustive and multi-factoral. Foremost amongst these is the need to be able to answer yes to the following criteria, inter alia:

  • Person uses and/or chooses their own equipment and tools in the production of outputs
  • Person directly bears all risk for the work performed
  • Person determines own work, sequence of work, etc.
  • Prson is bound by contract terms and not orders from company managers
  • Person’s services are incidental to the employers operations
  • Person is only paid when the work is complete, i.e., piece-work as opposed to remuneration by time period

What this means in practice

What does this mean for contractors and employers? If you operate as an Independent Contractor and thus avoid paying PAYE, you may be in for a nasty surprise: SARS will apply the “substance over form” approach and you may be deemed eligible for PAYE. Employers who employ contractors may be obliged to deduct PAYE; failure to do so will result in substantial penalties.

The decision tree provided in the SARS Interpretation Note makes it clear that a natural person resident and receiving remuneration in South Africa, who does not pass the “dominant impression” test, must be taxed as an employee. Furthermore,  anyone working for a labour broker must be taxed as an employee. Personal service providers are also subject to employees’ tax.

Employers who apply the statutory test and are confident they have contracted a person as an Independent Contractor may be exposing themselves to huge risks. They are mistaken in thinking there is no obligation to deduct PAYE. If contractors do not pass the “control” and “intuitive” tests, they must be taxed as employees. The same applies to individuals who present themselves as “independents” but fail to comply with the true definition of an “Independent Contractor”.

Navigating the minefield

While tax law and independent contracting has never been simple, it has become much more complex with this latest guidance from SARS and the stakes are much higher. It’s not worth taking risks.

Whether you are an employer or a contractor, if you need advice on classification and tax status of independent contractors, contact Highveld on 012 367 5600 or We have extensive experience in managing and advising contractors and we can help you stay on the right side of SARS.

Here’s a disturbing statistic: Stats SA estimates for 2017 indicate that 41% of the population is black females, while 4% is white males, but white men dominate science research in South Africa. And this gender inequality is repeated around the world: According to a UN study conducted in 14 countries, the probability of female students graduating with a Bachelor’s, Master’s or Doctorate in a science-related field is 18%, 8% and 2% respectively, while the percentages of male students are 37%, 18% and 6%.[1]

While these figures are representative of just how far we have to go toward true gender equality in the world of science, they have other, less obvious ramifications. In road traffic accidents, women’s injuries are often more serious than those of men. Maybe this is down to physiological differences. Or maybe it is because crash test dummies are modelled on male bodies. Restraining devices such as seat belts are designed by men and the safety and effectiveness of these devices is tested on “male” dummies. As any cyclist will tell you, the pressure points on the saddle vary for men and women, so it stands to reason that other pressure points are different too, but no one has thought to research this.

In medical science, if a clinical trial for a new drug is conducted primarily on male volunteers, by male scientists, the effect on women is unknown, and could be quite different.

These are just two examples of how gender bias in science can affect all of us, not only the equity of the scientific field itself.

International Day of Women and Girls in Science – February 11

It has been a rather busy week in South Africa, so you might not have noticed that last Sunday (February 11th) was the UN International Day of Women and Girls in Science. This international day of observation was adopted by resolution in 2015 to “recognise the critical role women and girls play in science and technology communities.” The day is supported by the United Nations Educational, Scientific and Cultural Organisation (UNESCO), the United Nations Entity for Gender Equality and the Empowerment of Women (UN-Women), the International Telecommunication Union (ITU) and other organisations that support and promote the access of women and girls to science, technology, engineering and mathematics education, training and research activities.

Why a day of observation?

What difference does one day in the year make, you might ask. And it would be a legitimate question. It will take much more than a date on the calendar to level the very unequal playing field that currently exists. But awareness of a problem is always the first step to solving it, and the International Day of Women and Girls in Science aims to raise the consciousness of industry, academia, researchers and educators globally to the need to encourage more girls and young women to choose science as a field, and to support more early-career and mid-career women scientists to further gender transformation by applying for high-level research chairs and other positions traditionally held by men. Often very capable women refrain from applying for competitive posts because they are discouraged from doing so by male colleagues or they simply operate in a culture where they perceive themselves as less worthy. This culture needs to change. Shining light on discriminatory practices is the first step.

The status quo in South Africa

The Association of South African Women in Science and Engineering estimates that women make up no more than 20% of the academics in these fields in Africa. In South Africa, slightly fewer than 40% of scientists, engineers and technologists are women. Our science statistics appear better than the rest of the continent’s because they include health sciences professionals, where women are gaining a foothold. One of the reasons cited for this disparity is the education system. Traditionally, girls and women have not had the same access to education as boys. That is changing now, but girls are often not steered towards the sciences, particularly the physical sciences, as they choose their subjects. There are fewer female role models among the science and maths teachers.

When young women enter the workplace, there is a lack of support for their progress in scientific careers and even outright discrimination. In academic institutions, research in other countries has shown that it is more difficult for women scientists to obtain good ratings and have equal access to funding than their male counterparts.

What we can all do

There are many organisations emerging that are tackling this gender inequality, such as Women in Physics in South Africa, the African Institute for Mathematical Science, and the Association of South African Women in Science and Engineering. We commend their efforts to promote inclusion and strengthen the role of women in science. But all of us can make a difference. We can encourage our daughters to study maths and science, support our female colleagues, ensure our hiring practices are genuinely fair and don’t contain hidden or unconscious bias, and reward the successes of women in science, particularly young women and those breaking into traditional male strangleholds like coding and software development. We will all benefit.

[1] Source: http://www.un.org/en/events/women-and-girls-in-science-day/index.shtml

The answer may surprise you! Why the Whitehall studies still matter in management science and how to look after mental health in the workplace.

Lessons from history

We’ve become quite intrigued by the history of management science lately. Last week we re-examined the famous Hawthorne studies, and this week our attention has been grabbed by the Whitehall studies. Our interest was piqued when this research was cited in a controversial book by Johann Hari, called Lost Connections: Uncovering The Real Causes of Depression – and the Unexpected Solutions. Hari questions what he sees as the overuse of anti-depressants and asks if our understanding of depression as “chemical” is legitimate. He suggests that there are environmental factors in modern life that may have more influence over our mental states than the make-up of our brains. He goes on to cite the Whitehall studies, but as Hari’s work has attracted criticism for his maverick approach to journalism and his biased interpretation of “facts”, we decided to go back to the source.

The Whitehall studies

The original Whitehall study, conducted over a decade beginning in 1967, was not concerned with depression or stress. It was designed to investigate the social determinants of health and to ascertain mortality rates, with a specific focus on coronary heart disease (CHD) among British civil servants. This cohort was selected for study because the civil service was characterised by marked distinctions between grades of workers and their social class. 18,000 male civil servants, aged 20-64, were observed. Consistently, the lower grade workers had higher risk factors and higher incidence of CHD. In other words, the more senior the status, the longer the life expectancy. Here in South Africa the notion of social determinants of health is a familiar one, and we might find these results entirely unsurprising. But at the time, this insight into the social gradient in health was a significant finding.

Lower grade workers, i.e. those from lower socioeconomic groups, were more likely to smoke, to be obese, to have less leisure time, etc. But even after controlling for these risk factors, researchers still found that the lowest grade workers were at much higher risk of CHD. The demographic risk factors only accounted for 40% of the difference in CHD mortality. The study was repeated with women, and a wider range of diseases included, with similar results.

Job control

The researchers were so keen to understand this discrepancy that they conducted a second Whitehall study, this time examining occupational and other social influences on health and disease. The study found that the way work is organised and the work climate (among other factors, including those outside work) all contribute to the social gradient in health. Correlation was found between  “job stress”, including “lack of skill utilisation”, “tension”, and “lack of clarity” in tasks, and blood pressure. The rise in blood pressure from the lowest to the highest job stress score was much larger among lower grade men than among upper grade men. Employment grade was strongly associated with work control, varied work and degrees of decision-making powers, as well as the demands and pace of the job. Lack of job control was correlated to long spells of absence.

This insight contradicts many commonly held beliefs about stress – that it is related to responsibility and workload and increases the higher one progresses up the career ladder. While these stress factors are undeniably valid, the importance of autonomy and self-worth at work – or the impact of their absence – cannot be ignored when seeking to understand occupational mental health.

Fast forward to today

No less an authority than the World Health Organisation (WHO), as recently as September 2017, published a fact sheet about mental health in the workplace, citing the following risks to mental health:

  • Inadequate health and safety policies
  • Poor communication and management practices
  • Limited participation in decision-making or low control over one’s area of work
  • Low levels of support for employees
  • Inflexible working hours
  • Unclear tasks or organisational objectives[1]

Lack of control over one’s work, no decision-making powers and lack of clarity around what one is supposed to be doing…it seems not much has changed in 30 years.

Productivity suffers from mental ill health at work

It is not only the individual who suffers. Organisations are severely affected too. Conscientious employers have a duty of care to their employees and their health; but the bottom line is also a reason to prioritise mental wellbeing. A study by the Deloitte Centre for Health Solutions in the UK, published in March last year, found that the total cost of mental ill health to UK employers in 2007 (the most recent period analysed) was estimated at £26 billion, or a staggering R440 trillion. In 2015-16, work-related stress in the UK accounted for 37% of all work-related ill health cases and 45% of all working days lost due to ill health. This is a shocking indictment of our modern working environment and a wake-up call to employers.

Create a (mentally) healthy workplace

Countless books, journal articles, websites and TED talks have been devoted to employee engagement, employee motivation, employee wellness and related issues. On this website over the past year we have covered a number of topics around stress management, employee wellbeing, etc. In a few paragraphs we can’t do justice to the task of creating a healthy workplace, but we’d like to end this article on a positive note. There are ways that employers can look after the mental health of employees. Offices and factories don’t have to be incubators for stress, depression and anxiety. The WHO offers the following tips:

  • Implement and enforce health and safety policies and practices, including identification of distress, harmful use of psychoactive substances and illness and provide resources to manage them
  • Inform staff that support is available (and make sure that it is)
  • Involve employees in decision-making and convey a feeling of control and participation
  • Establish programmes for career development of employees
  • Recognise and reward the contribution of employees

Let’s not forget the lessons of the past. The Whitehall studies demonstrated that lower grade workers, the individuals who appear to have “easier”, less stressful jobs, may be the ones suffering the most from mental health issues at work. Career development programmes need to involve employees at all levels, not just managers or fast-tracked young graduates. The contribution of all employees must be recognised and rewarded, including low-skilled as well as highly qualified workers. Don’t overlook those who clean your office and serve in your canteen.

These are very broad guidelines and represent principles rather than activities. Implementation of these principles will vary according to each organisation’s culture, resources and circumstances. But they represent sound policies that will encourage good mental health at work and yield benefits for employees and organisations alike.

For more information on the Whitehall studies and mental health at work:

who.int

deloitte.com

unhealthywork.org

[1] Source: http://www.who.int/mental_health/in_the_workplace/en/

Ask any business student about the Hawthorne effect and they will nod sagely and tell you that when employees are observed, their productivity increases. This was one finding of the seminal research conducted at the Western Electric plant in Hawthorne, Illinois, nearly 90 years ago, but it was just one conclusion out of several key discoveries that were to change the face of management science and herald the beginning of the human relations movement.

A Google search for “Hawthorne effect” yields nearly six million results. That’s pretty astounding for a research study that took place in a factory in the middle of America almost a century ago. Why are management training courses still talking about the Hawthorne studies and what can we learn from them in today’s work environment?

Some history

Not everyone has heard of the Hawthorne studies or the Hawthorne effect, so here’s a brief summary:

In 1927 the Western Electric Company asked some Harvard researchers to investigate employee productivity at the Hawthorne plant, near Chicago. At that time workers were viewed as rational, mechanical units of productivity; and management thinking around occupational psychology posited that work rates were determined by environmental factors such as temperature and light levels. Western Electric wanted to understand the relationship between illumination and worker output – a seemingly simple research question. Alter the levels of lighting and measure work rates.

What surprised the researchers was that productivity increased whatever the illumination – even when it was decreased to a level resembling gloom. They concluded that the confusing results were due to the inclusion of only one variable – lighting. So they began a series of experiments involving a select group of workers with similar skill levels (so that any differences in output could not be attributed to superior or inferior skill) who had agreed they would be happy to work together. Then they assigned the group (all women) a routine task which required no machinery (to remove the risk of mechanical breakdown contaminating results), put them in a separate room, and installed an observer whose job was to record the data.

With the study cohort in place, the researchers began playing with variables, to answer the questions of the day: what was the effect of temperature, humidity, number of rest breaks, length of the working day, etc. on productivity? The experiments were long and complex. The results confounded the researchers. It didn’t matter what conditions were imposed…whether they were seemingly better or worse; output increased. When conditions were returned to the default, pre-study norm, productivity stayed high, contrary to all expectations.

The Hawthorne effect

Today, the “Hawthorne effect” is regularly referred to, especially in social science, as the impact of the researcher or observer on the behaviour of research subjects. In other words, it is impossible to truly gauge the causes or extent of behaviour change because people instinctively behave differently when observed. But to remember Hawthorne for this insight alone is to miss the most important lesson from Western Electric. It seems obvious to us now, but the real enlightenment to emerge from the 12 years of experiments conducted at the Hawthorne plant was the realisation that workers form a social system – a team, with each member contributing as a valued and valuable human being. Teamwork and team-building are so much a part of organisational structures today that it’s hard to believe the importance of teams was completely unrecognised prior to the Hawthorne studies.

Human relations movement

These studies marked the beginning of the human relations movement – management thinking that acknowledges the importance of social factors at work. In this theory, part of the role of management is to provide an organisational environment in which employees’ social needs can be met, so that work becomes meaningful. Doing work that is “important” in itself (e.g. socially significant) is not always enough for people to feel their work is meaningful. It becomes meaningful in the context of co-operative activity and a sense of self-worth.

Millennials

Jump forward nearly a century, and one of the key characteristics of “millennials” is their desire for engagement. Millennials want to be consulted and feel they contribute to an organisation’s success. They want regular feedback on their performance and they want to be part of a team. This is true whether they are permanent employees or on a temporary contract. Yet most of them have never heard of Hawthorne or the human relations movement. Millennials and their “demands” are simply reflecting the basic human need for social engagement and a sense of self-worth.

What does this mean for modern organisations?

Ironically, despite widespread agreement that employee motivation, employee satisfaction, and team morale are critical for the success of any company, we work in a time when employees are under more strain than ever. We have still not fully recovered from the global financial meltdown of 2008, and companies are under intense pressure to remain profitable and keep costs down. This has a knock-on effect on employees, who must produce the outputs that keep the company in the black. Nice-to-have activities like training and team-building tend to be dropped when budgets are tight. 

Nurture your employees

A recent article in entrepreneur.com lists five ways to motivate a team. Unsurprisingly, number one is “schedule team-building activities” and number two is “support them”. Number five is “show your appreciation” – in other words, make them feel valued. This is a far cry from the notion of rational human behaviour in the workplace able to be influenced by lighting and temperature!

Hawthorne and the lead researcher, Elton Mayo, of Harvard, shook up the management world at the time and revealed enduring principles of human behaviour and social reality that are as important and relevant today (if not more so) as they were in Chicago in 1927. Forget them at your peril!

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