The Employment Contract

by Etienne Pretorius

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Labour laws in South Africa benefit both the employee and the employed by fostering a harmonious working relationship between the two. Employers can collaborate with their employees to create and achieve company goals thanks to effective labour laws. Employment law governs the relationship between employers and employees. It governs what employers can expect from employees, what employers can ask employees to do, and the rights of employees at work. The employment relationship is the legal connection that exists between employers and employees. It exists when a person performs work or provides services under certain conditions for monetary compensation.

International Labour Organization (ILO) “Areas of Work” [Accessed on: 20 April 2022]

There are a couple of categories of worker important to know:

  • employee
  • independent contractor
  • permanent employment contract
  • fixed-term employment contract

Employee or an independent contractor

An employee is any person, other than an independent contractor, who works for another person or the state and receives or may receive remuneration, as well as any other person who assists an employer in carrying on or conducting its business (section 213, Labour Relations Act, 1995 (LRA)).

When determining whether an individual is an employee or an independent contractor, the courts look at the substance of the agreement rather than its form and decide based on the dominant impression test based on a variety of factors. Factors considered include the person’s control over the other person’s productive capacity and whether the hours worked are subject to the control or direction of another person.

A person in this context is a member of the organization; economically depends on the other person for whom he or she provides services; and/or the other person provides with trade tools or work equipment.

Employees have the right to the benefits and protections afforded by South African labour legislation. Contract law and the specific contract under which they work governs independent contractors. As a result, it does not entitle them to the benefits and protections provided by labour legislation to employees.

Fixed-term contract

There are no time limits on how long a person can work as an employee or an independent contractor. However, there is a distinction to be made between indefinite and fixed-term employment contracts.

Employees on fixed-term contracts who earn less than the minimum threshold stipulated in the Basic Conditions of Employment Act 75 of 1997 (BCEA) (ZAR 224,080.48, as amended by The Minister from 1 March 2022) may be eligible for indefinite employment if their contracts are renewed for more than three months or terminated at the end of three months to avoid the deeming provisions of indefinite employment.

This does not apply if there is a justifiable reason for extending the fixed term contract beyond three months, such as a temporary replacement of an employee who is absent from work, employment because of an increase in the volume of work that is not expected to last more than a year, or employment for seasonal work.

Employees earning more than the threshold may be employed for a period of more than three months if the employment is for a set period or for a specific purpose. Constant renewal of such contracts may give rise to a claim for a legitimate expectation of indefinite employment.

Other indicators

Employers are required to register all employees with the Unemployment Insurance Fund under the Unemployment Insurance Act, 63 of 2001, and the Unemployment Insurance Contributions Act, 4 of 2002. (UIF). Employees in the following categories are exempt from this requirement:

  • Those who work for an employer for less than 24 hours per month.
  • Apprenticeships (the equivalent to apprentices).
  • Employees of the government
  • Contract workers who are foreign nationals.
  • Employees who are paid solely on commission.

Employers are required to make a monthly payment to the UIF on behalf of their employees, which includes both:

  • An employee contribution of 1% of the employee’s monthly salary.
  • An additional 1% of the employee’s monthly salary as an employer contribution.

An employer must register themselves and all of their employees with the Compensation Commissioner under the Compensation for Occupational Injuries and Diseases Act, 130 of 1993 (COIDA). They must provide the Commissioner with an estimate of the number of employees they will hire in the upcoming fiscal year, as well as the wages they will pay them. At the end of each fiscal year, the employer must complete and submit a return of earnings report to the Commissioner.

For employee taxation, every employer must register with the South African Revenue Services (SARS). Employers must deduct a percentage of their employees’ monthly pay, which must be paid to SARS within seven days at the end of each month. Employers must also complete and submit an annual reconciliation to SARS.