By Anton van Heerden, Managing Director at DNA EOR
Independent contractor agreements are increasingly popular in today’s global and digital economy.
They are especially appealing for companies seeking specialised skills for a specific project or a short-term engagement without the ongoing responsibilities that come with hiring permanent staff. On the surface, it’s a win-win: companies gain operational flexibility, and contractors enjoy the freedom of being their own boss.
However, South Africa’s labour framework doesn’t solely consider what’s written in the contract.
What truly matters is how the relationship functions in reality. If the contractor behaves like an employee, works like an employee, and is treated like an employee, South African labour law may indeed classify them as such – regardless of the contract’s title.
This ‘substance over form’ approach is enshrined in both the Labour Relations Act (LRA) and case law, leaving employers at significant legal risk if they misclassify a contractor.
Key Risk Factors
Several practical factors can blur the lines between an independent contractor and a permanent employee.
The more integrated a contractor becomes in the day-to-day operations of a company, the more likely it is that they will be seen as an employee under the law.
1. Control & Supervision: If the company dictates the contractor’s working hours, monitors their performance like an employee, or requires adherence to internal HR policies, the relationship mimics employment.
2. Integration: If a contractor attends internal team meetings, uses company assets (like laptops and offices), or is featured in internal communications, they are functionally embedded in the organisation.
3. Ongoing Work: Contractors initially hired for a 3-month project but renewed indefinitely may become de facto permanent employees.
4. Economic Dependence: Contractors who derive 90% or more of their income from one client may be seen as economically dependent, undermining their claim to independence.
Legal Consequences of Misclassification
Employers who misclassify workers risk more than administrative inconvenience – they face legal, financial, and reputational consequences. If a contractor is deemed an employee, they gain full rights under the LRA and the Basic Conditions of Employment Act (BCEA).
This includes:
- The right not to be unfairly dismissed, including access to the CCMA for dispute resolution
- Statutory leave entitlements such as paid annual leave, sick leave, and family responsibility leave
- Job security protections, including severance pay if terminated for operational reasons
- Employer obligations to contribute to UIF and possibly the Skills Development Levy
Additionally, SARS may impose penalties on employers who failed to withhold PAYE taxes from misclassified workers. In many cases, back-pay claims for benefits can be substantial – especially where a worker has been engaged as a contractor for several years.
Proceed with Caution: Independent Contractor vs. Employee Checklist
To protect your organisation from misclassification risks, ask the following:
- Is the work truly temporary or linked to a clearly defined project?
- Does the contractor invoice for work done rather than receive a regular monthly payment?
- Can the contractor delegate tasks or hire assistants?
- Is the contractor genuinely free to choose how, when, and where they work?
- Is the contractor financially independent, with multiple clients and marketing efforts?
Failing any of these checks could suggest the relationship is more akin to employment, in which case a fixed-term or permanent employment contract may be safer and more compliant.
Why Permanent May Be the Safer Bet
Permanent employment contracts are the gold standard in terms of compliance.
They provide transparency and protection for both employer and employee, with rights and obligations clearly defined by South African law.
For businesses operating through an Employer of Record (EOR) model, permanent roles also offer more predictability and reduce the long-term legal risks associated with misclassified contractors.
Permanent staff are easier to integrate into teams, train for long-term growth, and retain for strategic continuity.
If the role involves sustained collaboration, strategic decision-making, or access to sensitive internal systems, permanent employment is likely the better – and safer – option.
Flexibility at What Cost?
The message to employers is clear: tread carefully when choosing to engage independent contractors in South Africa. While contractor models can offer short-term convenience, they also carry legal traps that can ensnare even well-meaning employers.
Misclassifying employees as independent contractors puts both the end client and the contractor at risk.
Ultimately, flexible workforce models must be balanced with legal compliance and ethical hiring practices. Employers who operate in good faith, with accurate classification and proper contracts, will be better positioned to succeed in the South African market. When in doubt, consult experienced labour law professionals and choose the employment model that fits both your operational needs and the legal landscape.
