The Difference between an Independent Contractor and an Employee

An independent contractor can be defined as a juristic person or entity contracted to work for or provide services to another juristic person or entity who is not eligible for employee benefits or social security benefits such as UIF (Unemployment Insurance Fund), and who is liable for their own taxes.

The definition of an employee as defined in the Basic Condition of Employment Act (BCEA) means (a) any person, excluding an Independent Contractor who works for another person or for the State and who receives, or is entitled to receive, any remuneration; and (b) any other person who in any manner assists in carrying on or conducting the business of an Employer, and ‘’employed’’ and ‘’employment’’ have meanings corresponding to that of ‘’employee’’.

It is important to note that despite the definition of an employee as defined in labour legislation, the legislature created a legal presumption as to who an employee is, by extending the definition of an employee in S200A of the Labour Relations Act (LRA – “the Act”) and S83A of the BCEA. This is, however, not applicable to any person who earns in excess of the Annual Earnings Threshold as determined by the Minister of Employment and Labour (currently R224 080.48 per annum as at October 2022).

The Act clearly states that until the contrary is proved, a person who works for or renders services to any other person, is presumed, regardless of the form of the contract, to be an employee, if any one or more of the following factors are present:

a. The manner in which a person works is subject to the control or direction of another person;

b. The person’s hours of work are subject to the control or direction of another person;

c. In the case of a person who works for an organisation, the person forms part of that organisation;

d. The person has worked for that other person for an average of at least 40 hours per month over the last three months;

e. The person is economically dependent on the other person for whom they work or render service;

f. The person is provided with tools of trade or work equipment by the other person; or

g. The person only works for or renders services to one person.

The Act seems to be clear on when a person is deemed to be an employee. However, this is not always the case. The courts have, therefore, developed certain tests to help with distinguishing between an employee and independent contractor and these tests will be applied where disputes arise. The four tests are:

  1. The Control Test;
  2. The Organisation Test;
  3. The Economic Test;
  4. The Dominant Impression Test.

The Control Test:

  1. This test determines that should one party (the employer) have the right to supervise and control the work of another party (the employee), the person being supervised would be deemed as an employee.

The Organisation Test:

  1. This test determines whether a party would be deemed to be part and parcel of an organisation and to focus on the extent that a party is integrated into an organisation.
  2. In SABC v McKenzie (1999) 20 ILJ 585 (LAC) the court found that a person is an employee when they are ‘’part and parcel of the organisation’’ whereas the work of an independent contractor ‘’although done for the business, is not integrated into it but is only accessory to it’’.

The Economic Test:

  1. The focus of this test is to determine who profits from the services rendered, most importantly, whether the party rendering the services are doing so for their own benefit, or on behalf of another for their benefit.

The Dominant Impression Test:

This is the most common test used by the courts to determine whether a person is deemed to be an employee. Considering the nature of the relationship the following factors would be taken into account:

  • Whether the employer has the right to supervise the other person;
  • The extent to which the person depends on the employer in the performance of their duties;
  • Whether the person is allowed to work for another person;
  • Whether the person is required to devote a specific time to their work;
  • Whether the person is obliged to render the service personally;
  • Whether the person is paid according to a fixed rate or by commission;
  • Whether the person provides his own tools and equipment;
  • Whether the employer has the right to discipline the person.

In Smit v Workman’s Compensation Commissioner 1979 (1) SA 51 (A), the court distinguished six crucial differences between an employee and independent contractor in:

The objective of the employment contract is that of rendering of personal services by the employee to the employer.The objective of an independent contractor relationship is based on the performance of a certain specified work or the production of a specified result.
The employee will be at the beck and call of the employer to render services at the command of the employer.independent contractors are not obliged to perform the work themselves, unless specified otherwise.
The services to be rendered are at the disposal of the employer who may decide whether or not the employer wants them to be rendered.The independent contractor is bound to perform a certain specified work or produce a specified result within a fixed or reasonable time as per the parties agreement.
An employee is subordinate to the will of an employer and is obliged to obey the employer’s reasonable and lawful instructions.The independent contractor is bound to produce a specified work or result as determined by an agreement and not by the orders of the employer as he is not under the supervision or control of the employer.
An employment contract is terminated by the death of an employee.The death of an independent contractor does not necessarily terminate the agreement between the parties to the contract and the services of an independent contractor may still be rendered thereafter.
The termination of an employment contract is upon the expiration of the period of service.An independent contractor agreement terminates upon the completion of a specified work or the production of the specified result.

If you’re unsure on how to determine whether a person is deemed to be an employee or an independent contractor, call the experts at GA&A and we will gladly assist you.