The term “employee” is defined in the Labour relationship Act of 1995, the Basic Conditions of Employment Act of 1997 and other labour related legislation. However, the term “independent contractors” is not defined in any legislation. In general terms, an independent contractor is someone who independently renders specified services, or produces specified products or results, to a number of clients.
It is critical to distinguish between employees and independent contractors because:
• Only employees are protected by the provisions of the LRA, BCEA and other labour-related legislations against, for example, unfair dismissal, unfair discrimination and exploitation. This means, among other things, that whereas the contract with an independent contractor can be ended as provided for in the contract between the parties, employees can only be dismissed if the substantive and procedural requirements for a fair dismissal have been met;
• Only employees are entitled to the basic conditions of employment as stipulated in the BCEA, such as annual leave, sick leave and maternity leave, and the deduction of UIF, and the corresponding pay over to the Department of Labour, is also only relevant to employees;
• Employers of the employees are liable for any unlawful acts committed by their employees in the course and scope of their duties (for instance, accidents that injure others) whereas no such liability rests in respect of the actions of independent contractors;
• Although employers are obligated to deduct income tax from the remuneration of their employees, true independent contractors are personally responsible to pay their own income tax directly to SARS. Whether a person is truly an independent contractor, as opposed to an employee, would depend on the circumstances and facts of a specific relationship. Where most of the following factors are present, the person concerned is likely to be an employee:
• The manner in which the person works is subject to the control or direction of the person to whom services are rendered;
• The person’s hours of work are subject to the control or direction of the person to whom services are rendered;
• In the case of a person who renders service to an organisation, the person forms part of that organisation;
• The person has worked for the person to whom services are rendered for an average of at least40 hours a month over the past three months;
• The person is economically dependent on the person to whom services are rendered.
• The person is provided with tools of trade or work equipment by the person to whom services are rendered;
• The person only works for, or renders service to, one organisation;
• The object of the contract between the parties is for the person to render personal services;
• The organisation to which services are rendered may choose when to make use of the services of the person;
• The person is obligated to perform lawful commands and instructions of the organisation to which services are rendered;
• The contract between the parties terminates on the death of the person who renders the services;
• The organisation to which the services are rendered provides training to the person in respect of the business’s methods;
• The person receives fixed payments from the organisation to which services are rendered over defined consistent periods, regardless of output or results provided;
• The person belongs to the organization’s pension fund or medical aid scheme (or qualifies for any other type of employee benefit provided by the organisation). In determining whether a person is an employee our courts and the CCMA are more interested in the factual nature of the relationship between parties, than the specific label attached to the relationship by the contract.
If an employer treats a person as an independent contractor under circumstances where the person is in reality an employee, the employer is placed at risk since it is not providing the employee with benefits employees are legally entitled to. Also, no income tax will be deducted from the person’s remuneration, exposing the employer to tax problems.
Furthermore, on termination of the person’s services the employer might face a claim of unfair dismissal since it in all probability would not have followed the correct legal procedures in terminating the person’s services.
For further information on Unfair Dismissal or any labour related matters, you can contact Bernard Reisner: