What are the pros and cons of engaging an independent contractor vs employing an employee?
The Basic Conditions of Employment Act 75 of 1997 (the BCEA) and the Labour Relations Act 66 of 1995 (the LRA) define an employee as any person, excluding an independent contractor, who works for another person and is entitled to be paid for it, or who in any manner assists in carrying on or conducting the business of any employer.
The distinction between an employee and an independent contractor is important as only employees are entitled to the protection of employment legislation.
As a result, it becomes apparent that the advantage of engaging a person who is an independent contractor, rather than employing someone, is that an employee is entitled to the protection of the employment legislation, which is onerous on an employer.
Thus, many employers seek to avoid their obligations under employment law by stipulating that someone is an independent contractor rather than an employee. However, if such a relationship is tested, the law requires that the true nature of the relationship is determined.
Section 83A of the BCEA and Section 200A of the LRA provide a list of presumptions as regards the existence of an employment relationship. These presumptions are applicable when a person earns below the income threshold prescribed and serve as a useful guideline in determining whether a person earning above the income threshold is an employee.
What is an employee?
Employment is presumed where:
- The ‘employee’ works in a manner that is subject to the control or direction of an ‘employer’
- The hours of work of the ‘employee’ are subject to the control or direction of an ‘employer’
- The ‘employee’ forms part of the organisation of an ‘employer’
- The ‘employee’ has worked for an ‘employer’ for an average of at least 40 hours per month over the last three months
- The ‘employee’ is economically dependent on the ‘employer’
- The ‘employee’ is provided with his or her tools of trade or work equipment by the ‘employer’
- The employee only works or supplies services to one ‘employer’.
The nature of the relationship
Accordingly, it is not a matter of choosing whether it is more advantageous to engage a person as an independent contractor or whether to employ someone; it is a matter of determining what the true nature of the relationship is.
In the event that it is an employment relationship, it is advisable for an employer to honour their obligations under employment law.