Have You Hired Independent Contractors Or Employees?
With the rise of the gig and on-demand economies as well as remote workplaces, the question of whether an 'independent contractor' is in fact an employee is perhaps more significant than ever.
This question has been considered in a number of countries around the world in relation to, for example, Uber drivers, where certain drivers in California have been ruled employees inspite of Uber having ‘employed’ them as independent contractors.
So what’s the significance between the two?
Well, being deemed an employment relation means that the Basic Conditions of Employment Act and Labour Relations Act apply, and you would have to register for the Skills Development Levy, Unemployed Insurance Fund, Workman’s Compensation, SITE and PAYE for example, which entails continuous monetary contributions.
Furthermore, ending an employee’s employment is far harder than terminating an independent contractor, as the provisions of the Labour Relation Act, in so far as the procedures are concerned, such as disciplinary hearings and the like, are required to be followed in the case of dismissing an employee versus an independent contractor which normally entails issuing a simple notice of termination.
In South Africa, in December of 2006, the NEDLAC Code of Good Practice was released, setting out certain rules outlining when a worker will in fact be regarded as an employee. Of particular importance in the Code is the presumption of who is an employee in terms of both the Labour Relations Act and the Basic Conditions of Employment Act.
This presumption applies to all workers if their gross earnings before any tax, pensions, medical aids and other similar payments have been deducted are below R 205 433.30 per annum.
The Code sets out seven factors to determine whether someone is in fact an employee. These factors apply regardless of the form of a contract. For example, placing a label on the relationship such as a ‘Sub-Contractor Agreement’, ‘Agency Agreement’, ‘Independent Contractor Agreement’ etc, even if recorded in the contract itself, cannot be taken as conclusive proof that that worker is an independent contractor.
In practice, if a worker can establish that one of the seven factors is present, unless the ‘employer’ can then prove otherwise, the worker is regarded as an employee.
Let’s have a look at the seven factors a little closer:
1. The manner in which the person works is subject to the control or direction of another person
If a worker is subject to the demands, orders or instructions of the ‘employer’ or employer’s personnel as to the manner in which the worker is required to work, this factor is generally presumed to be present.
In contrast, this factor is not present if a person is hired to perform a task or produce a particular product and is entitled to determine himself the way in which the task is to be performed.
If the head office of the company operating a ride sharing app instructs its drivers on exact directions to take for each trip, and how they should behave and dress, this factor would most likely be present.
2. The person's hours of work are subject to the control or direction of another person
If a worker’s daily working hours or total monthly work hours are set out in a contract, this factor may indeed be present.
For example, an Independent Contractor Agreement which requires the worker to work between 9am and 5pm every weekday would certainly be indicative of this factor being present.
3. In the case of a person who works for an organisation, the person forms part of that organisation
For example, at a manufacturing plant, if a worker is hired to operate the machinery which performs a core function of the manufacturing plant, this factor will most likely be present.
4. The person has worked for the other person for an average of at least 40 hours per month over the last three months.
This factor is self-explanatory and is predominantly present if a worker works for a full nine-hour per day work week per month for an ‘employer’.
5. The person is economically dependent on the other person for whom he or she works or renders services
This factor is generally present if the worker is dependent on the ‘employer’ as their sole or principal source of income.
With the exception of part-time employees, the Code says that this factor won't generally be present if a person is genuinely self-employed or still has the capacity to contract with other people to provide services.
If the driver of a ride sharing app is entirely dependent on the owners of the app as a source of income, and the driver is not discernibly self-employed or does not have the time to build up relationships with other possible ‘employers’, then this factor will in all likelihood be present.
6. The person is provided with the tools of trade or work equipment by the other person
In our ride sharing example, if the employer provides the driver with the vehicle to be used, whether the vehicle is provided free of charge or not, this factor will most likely be present.
7. The worker only works for or renders services to one person
A writer working for a particular blog twice a week, another blog twice per week and a news outlet once per a week, would generally be regarded as an independent contractor and not an employee.
As you can see, the lines between an employment relationship and independent contractor arrangement are often blurred and require careful navigation.