What Is Employment?

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Employment is the arrangement made for the performance of personal services and individual. There must be an employer and an employee and the relationship between the two must be one of master and servant. In other words, there must be control by the employer in respect of the manner in which the employee is to conduct his work and in the case of the employee, there must be an obligation to discharge his duties of employment in accordance with the wishes and instructions of the employer.

A director, whether an executive or a non-executive director of a company, is regarded as an employee of that company according the to definition of “employee” in the Income Tax Act (sec 2(1)). The term “employee” also includes the chairman or any member of a statutory board.

There is no definition of the term “employment” in the Income Tax Act. Therefore, it is sometimes difficult to ascertain whether a taxpayer is carrying on a profession or vocation chargeable to tax under sec 10(1)(a) or is deriving income from the exercising of an employment chargeable to tax under sec 10(1)(b).

Employment distinguished from a profession

The distinction between employment and a profession must be clearly understood. A profession involves the making of a series of engagements or successive engagements. Therefore, if the earnings of an individual are the result of a series of engagements and if he moves from one to another at his own will, he is considered to be exercising a profession, not an employment. Thus an actress’ engagement could not be considered as an employment but a mere engagement in the course of exercising a profession. The rewards which a “self-employed” individual receives form part of his or her business income (sec 10(1)(a)).

Basically, it is a question of fact whether an individual is “employed” or “is carrying on a profession”. The pertinent questions are:

  • Does the taxpayer occupy an office?
  • Does the taxpayer undertake an employment?
  • Are the services rendered by the taxpayer merely in the course of the exercise of his profession?

Thus, where a taxpayer makes a living by undertaking a series of engagements for reward, then none of them will be considered an employment. Each one will be merely a contract for services, entered into in the sense of a whole business or profession. On the other hand, where a tax player’s working life involves obtaining an appointment and staying in it until he obtains another appointment, each succeeding a contract will be a contract of service.

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