In 2023, many businesses are working in new, collaborative ways. This means that the line between employment and independent contracting can get blurred. This article explains how employers can prevent disputes around employees vs independent contractors.
The annual threshold that is excluding employees from the BCEA
Section 6 of the Basic Conditions of Employment Act (BCEA) says that the Minister of Labour must publish a determination of the yearly threshold which excludes employees from certain parts of the BCEA.
What does this mean for employees and employers?
There is an important consequence that most employees and employers are not aware of: the rebuttable presumption as contained in Section 200A of the Labour Relations Act (LRA) does not apply to employees earning above the yearly threshold published by the Minister of Labour.
This means that we cannot automatically assume that an employee is an employee and not an independent contractor. It is for the employee to prove that he or she is an employee and not an independent contractor.
How to avoid a dispute as an employer
The above does not seem to be complicated, but it can get complicated quite quickly.
For example, a medical practice hires locum tenens as independent contractors to do a specific task at the practice. The independent contractor chooses his/her shifts and is free to work for any other practice and is not bound to one practice. Is the locum tenens an independent contractor or an employee? Bear in mind, the locum tenens earn well above the yearly threshold, so the rebuttable presumption is not applicable.
The easiest way to avoid the above dilemma is to ensure that a service level agreement is conducted between the company and the independent contractor. If no service level agreement is in place, the argument can be made that the independent contractor is an employee.
How the employer can identify an independent contractor
Businesses should keep the following factors in mind when determining whether an independent contractor is a true independent contractor, or an employee.
A true independent contractor will:
- Be a registered provisional taxpayer.
- Work his/her own hours.
- Run his/her own business.
- Be free to work for more than one employer at a time.
- Render invoices for service done.
- Not be subjected to normal employment matters like UIF and PAYE.
The difference in what is stipulated in an employment contract vs independent contractors Service Level Agreement.
An employment contract would typically contain the following information, but are not limited to same:
- The name of the employee.
- The commencement date of employment.
- The job description and duties of the employee.
- The type of employment contract and the duration.
- When work will commence on each day and how many hours the employee will work.
- The remuneration the employee will receive and any benefits the employee is entitled to
- Any confidentiality and restrained of trade clauses.
- Leave provisions.
A service-level agreement would typically contain the following basic clauses:
- Terms of service.
- Description of the work to be done.
- Periods in which the work needs to be concluded.
- How invoices will be processed and paid.
Thus, there is a clear difference between an employment contract and a service level agreement, with the main difference being that a service level agreement sets out terms of service and an employment contract states the duties of the employee.
The biggest identifier that one is dealing with a Service Level Agreement rather than an Employment Contract is that a Service Level Agreement is of a non-exclusive nature, which means that the independent contractor can render service to other entities, whereas the employee usually can only tender his or her time and service to one employer depending of the type of employment.
In conclusion, it is crucial for employers to scrutinize the content of so-called “independent contractor” agreements. Many agreements in practice today may not genuinely reflect an independent contractor relationship, but rather an employment agreement. Employees challenging their status as independent contractors can often provide compelling evidence to support their claim, putting the burden of proof on the employer.
Understanding the distinction between contract employees and full-time employees is essential for employers operating in South Africa. By adhering to the guidelines provided by labour laws and considering the factors that differentiate independent contractors from employees, businesses can avoid disputes and ensure compliance. Establishing clear service level agreements and scrutinizing the content of contracts can help employers accurately classify workers, mitigating the risk of misclassification claims and associated legal consequences.
The line between employment and independent contracting can be blurred, but it is important for employers to get it right. By following the tips in this article and seeking professional legal advice, employers can help to prevent disputes and ensure that they are complying with the law.
