Contractor vs Employee
- What are the differences between contractors and employees?
A true independent contract will be a registered provisional tax payer; will work his own hours; runs his own business; will be free to carry out work for more than one client at the same time; will invoice the client for his/her services and be paid accordingly; will not be subject to usual “employment” matters such as the deduction of PAYE or UIF from his invoice, will not receive car allowance, annual leave, sick leave, 13th Cheque and so on.
An employee on the other hand is:
- a) Any person, excluding and independent contractor, who works for another person or for the State and who receives, or is entitled to receive, any remuneration; and
- b) Any other person who in any manner assists in carrying on or conducting the business of an employer.
An employee is paid a fixed salary for working fixed hours, whereas an independent contractor usually earns a varied income based on hours worked and is often simply required to deliver a product or a specific service to a client.
An employee will usually work for one employer and an independent contractor may have various clients.
- What are the advantages and disadvantages of being hired as a contractor rather than an employee?
An employee is subject to the rules, regulations, supervision and discipline of an employer. On the other hand, an independent contractor works for herself/himself on a freelance basis and is usually not subject to any of the restrictions that an employee may be subject to.
An independent contractor does not work for a boss and can take on any work he/she likes or refuse to take on work which they dislike. The contractor can work in his/her own time, at their own pace and are not commonly office bound.
There is no guarantee of regular work or regular income, which can fluctuate wildly. There is a risk of going through periods with no income
There are no benefits such as paid sick leave, paid annual leave and paid family responsibility leave and all other statutory provisions contained in the Basic Conditions of Employment Act.
The client can terminate the contractor’s contract with it at will, in terms of the agreement, without being required to give reasons or go through a process to terminate the contract.
- What are the advantages and disadvantages of being hired as an employee rather than a contractor?
An employee has a regular, fixed income.
An employee has rights in terms of the provisions contained in the Basic Conditions of Employment Act and the Labour Relations Act in that an employer cannot dismiss the employee at will but must go through a fair pre-dismissal process, which the employee can challenge at the CCMA, appropriate Bargaining Council or Labour Court.
Some employers will provide benefits of pension/ provident funds, medical aid, tools and equipment to enable the employee to perform his/her job.
Being required to work stipulated hours which may be inconvenient to the employee.
Being required to work at designated premises which may require considerable travelling to and from work, at the employee’s expense.
Being subject to the rules/ regulations of an employer which may be rigidly and rigorously applied.
In some cases the manger/s do not conduct themselves professionally in a manner conducive to a sound working relationship in that they are too harsh, impose discipline disproportionately, victimise the employee, coerce unnecessarily.
- Under which circumstances should someone consider being hired as an employee, and under which circumstances should someone opt for being hired as a contractor?
If a person wants job security, a regular, fixed income and the benefits referred to above, the person should apply for employment.
If a person prefers working independently and does not mind foregoing the benefits enjoyed by an employee, contracting as an independent contractor will be preferable.