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As an entrepreneur you may think you’re too busy to worry about employment contracts for your employees, but ignoring this legal requirement could have serious consequences down the line.

Because many small businesses are run with a relaxed atmosphere, some entrepreneurs tend to ignore the need for formal contracts and agreements, assuming that all their dealings with members of staff can be handled verbally. While this is a very good approach to managing the staff of a small business, South African law requires that every staff member have an employment contract.

Do all employees require contracts?

According to the Basic Conditions of Employment Act, all employees should be provided with a written document outlining the terms of their employment (their job description, working hours, salary details and other information) on the first day of employment.

When you take on a new member of staff, you should agree on the job description, working hours, and the exact salary the person will be earning from the beginning. This will avoid conflict later on, and will place you and your employee on a solid footing, creating trust in your working relationship.

Ideally, your basic employment contract should be drafted by an HR Expert, allowing you to edit small details like the name of the new staff member, the salary, and the working hours for each new employee you hire. The once-off fees are more than worth it when you consider the legal protection you’ll receive from having a well drafted contract.

Can a staff member be an Independent Contractor?

An independent contractor is someone who performs a service at your premises and is paid for that service. Some common examples of independent contractors are plumbers and electricians. These individuals are not employed by you – they simply render a service when needed. An independent contractor also works his or her own hours and does not require any form of insurance, medical aid, or UIF contribution.

Some employers try to avoid their legal obligations by treating certain members of staff as independent contractors. This strategy may sound like a good idea, but entrepreneurs should understand that staff members are not independent contractors, and if an inspection is done by the Department of Labour, employers who have placed staff members on independent contractor contracts could be liable for fines, and will have to change these contracts to contracts of employment. If you find yourself in this situation, you may also have to back-pay your UIF contributions for any staff members who were employed without the proper contracts.

Who counts as an employee?

Employment contracts are governed by the law, making it important for employers to understand the legal definition of an employee. The Labour Relations Act defines an employee as:

  • 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
  • Any other person who in any manner assists in carrying on or conducting the business of an employer.

In other words, anyone who works for your business and gets paid for it counts as an employee – this includes part-time members of staff but excludes independent contractors like outsourced service providers.

It should be clear by now that all your staff members are entitled to employment contracts. Some business owners feel uneasy signing written documents with a new member of staff, but legal advisors disagree – by signing a contract you are protecting yourself and your new member of staff.

Probationary periods

Many employees start working for a business with the understanding that they will be re-assessed after a certain period (usually 3 – 6 months) and if they have fulfilled the requirements of the job their contracts will be finalised. While this is an acceptable requirement, some employers assume that they don’t have to sign a contract of employment until the probationary period is over – this is not the case.

When you sign a contract of employment with a new member of staff, it should include a clause that discusses the probationary period in detail. Your HR Specialist will assist you in the actual wording of this clause, but the details it should include are: (i) how long the probationary period will be, (ii) what requirements the employee will need to fulfil, and (iii) how the employee will be assessed.

Once the probationary period is over, you can assess your employee’s suitability for the job and decide on whether the contract should be finalised – remember to consult a labour advisor before dismissing any member of staff or refusing to finalise an employment contract.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your business adviser for specific and detailed advice.

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