Through our work with South African businesses looking for outsourced HR services, one of the most common that we come across is the blurring of the lines between an employee and an ‘independent contractor’.
It can happen very easily but becomes a real nightmare when the matter ends up reaching the CCMA. Somebody you thought was an ‘independent contractor’ or even a service provider suddenly claims employee status and the protection of the CCMA.
Below we give 2 practical examples that we have come across.
Example one – a sports coaching business getting their HR wrong
One of our colleagues had to recently make representation at the CCMA on behalf of an SME operating in the sports academy field. The business did private sports tutoring and as it had expanded, they had brought on an additional coaching resource on an “independent contractor” basis for an initial 3-month period.
This arrangement continued past the three months and was automatically extended with no formal documentation for the next 3 years.
As the business matured and grew its client base, it sought to “professionalise” its operations and undertook a couple of initiatives which included:
- Purchasing the coach in question a laptop to do additional analysis
- Developed a “Code of Conduct” which it expected all ‘team members’ to sign
- Required the coaches to sign agreements confirming that the clients were the property of the business and they could not approach them independently to offer a same or similar service
… and then at the end of the 2025 season, the relationship between this coach and the business soured and the business informed the coach that he was “terminated”.
The coach in question was unable to find immediate work and in consultation with a labour lawyer then approached the CCMA on the basis that they had been unfairly dismissed as an employee and was claiming a settlement on 3 years.
The business owner pointed to the initial 3-month description of the agreement being an “independent contractor” but the CCMA then asked where the supporting documentation for the next 3 years sat.
Example two – no good deed goes unpunished
In our second example, the business owner operates a small accounting business and is approached by his daughter to give her friend some entry-level work experience for her CV.
The business owner is grappling with a marginal business but meets with the friend who explains that she is thinking about going and studying next year but would like to get 6 months experience on her CV.
The relationship runs until the end of December and the friend is paid her nominal entry-level salary and the business owner assumes that is the end of that… except for one thing – the friend asks if she can continue using the shared office space for its internet connection and coffee on an ad-hoc basis.
The business owner naturally agrees and carries on the course of business … right up until the end of January where the friend enquires when she will be paid for January. The business owner is flabbergasted and explains that the relationship ended in December, no work was done in January as evidence and that she had indicated she was going off to study that year. The friend counters by saying she was an employee and was simply waiting for instructions and lodges a matter at the CCMA.
It is an easy trap to fall into
According to industry data, the CCMA handles somewhere between 180 000 and 225 000 cases per year – of which roughly 70% are due to “Unfair Dismissal” (126 000 cases and upwards).
Of those 126000-plus cases, somewhere between 10% and 15% fall into disputed jurisdiction – IE there is a dispute as to whether the person involved is an employee or independent contractor. In the era of the “gig” economy, this figure continues to rise.
When we look at the SMEs in our network and the common mistakes they make when it comes to their HR processes, you can see how easy it is to fall into this trap.
As a business owner, you are risk averse and don’t want to commit to a full-time employee, but you are starting to scale-up and you look for an ‘independent contractor’ in your network to help capacitate your business.
At the same time, the independent contractor wants the freedom of not being a permanent employee.
Often the first engagement is quite well-documented and you find you can work with this individual and the process just rolls on. There’s no real documentation of the relationship and in the eyes of your clients, they become a natural extension of your business.
You start investing in common or shared hardware and you start treating the contractor as ‘a member of the team’ with things like codes of conduct and anti-poaching agreements…. Things which can be interpreted as moving the relationship closer to an employer / employee relationship.
What can South African SME owners do to cover themselves from an HR perspective:
- Document the relationship at each stage of renewal
- Be clear in your own head whether the person is a contractor or employee and make this distinction clear in how you deal with them
- Be clear about how they are remunerated
- Be careful around the use of shared infrastructure
- Do an annual audit of your various relationships
If in doubt, bring in outside help – you’ll sleep sounder with robust HR processes
As a small business in South Africa, running a full-time Human Resources (HR) team is not always viable and these small things slip through the cracks. Unfortunately, when relationships turn negative, the ‘independent contractor’ who wanted the independent status, they very quickly prefer the protections of South African labour law.
As experienced entrepreneurs who have operated across a variety of industries, we have a team on hand to be able to assist you to navigate these challenges.
If you would like to setup a meeting, please do not hesitate to reach out to us or come and visit it us at our Hyde Park offices.