• Introduction
  
  

This meant that the employers have, up to now, been able to avoid a multitude of labour laws by hiring workers as independent contractors. However, today there are certain problems which employers face when embarking on such an enterprise.

As an alternative to permanent workers, many employers enter into agreements with independent contractors. Entering into such an agreement with someone who will work for you as an independent contractor has distinct advantages. The difference between a contractor and an employee is substantial and crucial because a true employee is strongly protected by numerous pieces of labour law whereas a true independent contractor is not.

The contractor would not enjoy the rights and protections afforded by legislation, such as protection against dismissal, minimum wage, restrictions on working time, annual leave, sick leave, complying with the affirmative action requirements of the EEA and following the disciplinary procedures prescribed by the LRA. New labour laws were introduced recently that changed the whole ball game in South Africa and the LRA now considers some contractors as employees even if those contractors signed agreements to the contrary.

Large proportions of workers hired on the basis of independent contracts are, in fact, unaware that they are employees according to our labour laws. Where such employees are treated as independent contractors, this is illegal and could result in serious ramifications for the employer

• Tax

Away are the days when one could distinguish between an independent contractor and an employee by way of tax payments. Previously independent contractors were easy to identify as they were responsible for paying their own tax, nowadays it is a lot more complicated. Employers are now compelled by the South African Receiver of Revenue (SARS) to collect tax on their behalf and employers act as agents for SARS.

Thus, should the Receiver of Revenue deem an independent contractor as an employee, the onus rests on the employer to make payments to SARS, irrelevant of the underlying relationship between the parties and without taking into consideration any payments (including tax) already made to the employee.

SARS expects an employer to deduct tax from an entity with less than 3 employers should that entity:

• be paid on a regular basis;
• receive more than 80% of its income from one employer;
• work under the supervision of the employer.
  

It is therefore clear that SARS is holding the employer to a greater extent responsible for tax payments and employers cannot avoid their responsibility anymore by ignorance. Being pro active in their relationship with independent contractors, employers can reduce their accountability towards SARS and can save a lot of money at the end of the day.

• So how do we know?

A typical example of an independent contractor is the external plumber who is called out when a tap is leaking. The plumber is under no legal obligation to repair the tap on the date and at the time the client says he must. The plumber comes when he decides it is convenient for him, does the work without the supervision of the client, and is paid for fixing the tap, not for being available.

However, where a larger organisation employs its own internal plumber, then that plumber must be available at all times and is paid at the end of the month for being available even if there is no plumbing work to be done during the month. It is interesting to notice that certain presumptions are also created by the pending amendments to the LRA (Section 200A).

So the big question still remains, how do we know? The answer can be found in case law. Currently case law indicates that the courts use the following guidelines when determining if someone is an employee or an independent contractor:

• Employees are usually entitled to certain benefits such as sick and leave pay, medical aid and pension benefits;
• Independent contractors are paid not for being present and available in case there is work, but rather for completing a pre-specified piece of work or for achieving a pre-specified result (thus, an employee’s remuneration is not dependant on what she or he produces);
• Independent contractors are economically self-sufficient, ie, must not depend on the company for whom he/she is doing work; 
• Independent contractors are in control of his/her own working time and work methods; 
• Independent contractors work independently of other employees / workers; 
• Independent contractors do not form part of the client organisation (business card, uniform, etc.) but must have its own identity; 
• Independent contractors are not to be provided with tools of trade or work equipment; 
• Employees usually work out of an employer's office.
  

If one or more of the above mentioned factors are present, a person who provides a service to you could be presumed to be an employee until the contrary is proved. Thus, if you terminate the contract unlawfully and the person claims to be unfairly dismissed, you would have to prove that the person is not an employee. But the above list is not a closed list nor does it constitute necessary and sufficient conditions of an employment relationship. It is merely indicative of the employment relationship. So what then can be done to avoid us from contracting an employee?

• It is a good idea that the contract that is signed makes it very clear that the person is there as an independent contractor and no other relationship is created with the contract;
• Independent contractors should provide a certain service and should not be under the control of the employer;
• No provisions for leave, pension, medical etc. are to be made for independent contractors;
• Independent contractors should be hired for a certain task, and not for a period of time;
• Independent contractors should be identifiable e.g. uniform, signs on vehicles etc.;
• With regards to tax, the employer should make its own tax deductions if independent contractors cannot provide the employer with a written directive or exemption from tax, issued as a certificate by the Commissioner for Inland Revenue;
• In any contract entered into with an independent contractor, it would be prudent to record therein that none of the factors referred to in the new Section 200A of the LRA that serve to create the presumption, will apply.

• Conclusion

To conclude, legislation nowadays are much more stringent when it comes to the employer / employee relationship. The onus rests on us, as employers, to ensure that we apply legislation and the warning to management is simply to ensure independent contractors are actually independent. The terms of the contract and the facts underlying the relationship must not be construed in any other way.

Lastly, and I think the most important fact to take in consideration, make sure management is aware of the fact that the relevant person is an independent contractor and not an employee of the company and treat the independent contractor as such.