Three ways it goes wrong
South African employment law does not wait to be invoked. Each of these three rules changes the legal position the moment the facts are met, whatever the paperwork says.
| The mistake | What the law does | Provision |
|---|---|---|
| A “contractor” who is in law an employee | Below the threshold, any one of seven factors presumes employment and the engager must disprove it. Above it, the dominant impression decides. | LRA s 200A; BCEA s 83A |
| A fixed term with no justifiable reason | After three months the contract is deemed to be of indefinite duration — the job is permanent. | LRA s 198B(5) |
| A placement that outstays a temporary service | The client becomes the employer, indefinitely, and must treat the worker no less favourably than its own staff. | LRA s 198A(3)(b) |
A fourth, quieter one belongs on the list: paying a contractor’s company without testing whether it is a personal service provider. That is purely a tax exposure, and it falls on the payer — see the personal service provider test.
Figures last reviewed 9 September 2026.
What it costs at the CCMA
Status is a jurisdictional fact. A CCMA commissioner decides it first, on the evidence, and is not bound by the parties’ description of their own relationship. If the answer is “employee”, four things follow at once.
- The dispute is heard. An unfair-dismissal referral made within 30 days proceeds to conciliation and arbitration at no filing cost to the worker. Compensation is capped at 12 months’ remuneration, and at 24 months where the dismissal was automatically unfair.
- Back-claims open up. Annual leave, notice pay, overtime, Sunday and public-holiday pay and severance can all be claimed for the period of the engagement, because they were always owed.
- Statutory contributions become arrears. Unemployment Insurance Fund and Compensation Fund contributions that should have been paid are recoverable, and the skills development levy with them where the payroll crosses R500 000.
- The minimum wage carries its own penalty. Underpayment attracts a fine of twice the underpayment, rising to three times for a repeat offence.
The Labour Court has dealt with the consent argument — the one every employer reaches for — more than once. In a case where staff were persuaded to resign and sign a standard-form contractor agreement while the work carried on exactly as before, the court’s conclusion was short:
Where a labour broker was involved, the client does not escape either. The Labour Relations Act makes the client jointly and severally liable for the broker’s breaches of the BCEA, a bargaining council agreement, an arbitration award or a sectoral determination — which means the worker can enforce against the client directly, and a labour inspector can too.
The temporary employment service and the client are jointly and severally liable if the temporary employment service, in respect of any of its employees, contravenes— (a) a collective agreement concluded in a bargaining council that regulates terms and conditions of employment; (b) a binding arbitration award that regulates terms and conditions of employment; (c) the Basic Conditions of Employment Act; or (d) a sectoral determination made in terms of the Basic Conditions of Employment Act;
What it costs with SARS
The tax exposure is separate, it is calculated differently, and it lands on the payer. The Fourth Schedule places the duty to deduct employees’ tax on the person paying remuneration, and where that duty was not met the employer is liable for the tax itself, with penalties and interest. Recovery from the worker is possible only in narrow circumstances, and an amount that cannot be recovered is treated as a penalty in the employer’s own hands — so it is not deductible.
Two structural traps sit alongside that. First, the two statutory tests: a person whose services must be performed mainly at your premises under your control as to manner or hours is deemed not to carry on an independent trade, so you should have been withholding all along, reporting under IRP5 code 3616. Second, where the contractor invoices through a company or trust, the personal service provider rules may have required withholding at 27% or 45%, and the entity’s own deductions are limited.
Section 23(k) limits the deductions available to personal service providers and labour brokers without a certificate of exemption.
Deeming happens by itself
The word “deemed” does a lot of work in this part of the Act, and it is worth being precise about what it means: the legal position changes automatically when the facts are met. Nobody has to apply for it, and no tribunal has to declare it first.
Employment in terms of a fixed term contract concluded or renewed in contravention of subsection (3) is deemed to be of indefinite duration.
In May 2026 the Labour Appeal Court applied exactly that provision, upholding an appeal on the footing that the deeming had operated on the facts. The employee did not have to prove anything beyond the sequence of contracts and the absence of a justifiable reason. The practical effect is that the “expiry” of the last fixed term was not an expiry at all — it was a dismissal, and it needed a fair reason and a fair process.
The same is true of labour-broker placements, where the Constitutional Court has explained what the deeming does and does not do:
And terminating the placement to head the deeming off is itself a dismissal (s 198A(4)) — so the obvious workaround is closed. See labour brokers and secondment and fixed-term contracts.
How it surfaces
Almost nobody discovers a misclassification while the relationship is going well. It surfaces at the worst possible moment, in one of four ways.
- The engagement ends. The person refers an unfair dismissal to the CCMA and the commissioner has to decide status before anything else. This is by far the most common route.
- Someone claims from the UIF and finds they were never registered — which prompts questions about everyone else engaged on the same terms.
- Someone is injured at work. The Compensation Fund has no record of the person, and because a genuine contractor is excluded from cover, the injured worker’s remedy is a civil claim against the business instead of a Fund claim.
- SARS verifies or audits. A pattern of payments to a one-person company invites the question why employees’ tax was not withheld, and the answer has to be documented rather than asserted.
There is one more, more modern route: a bargaining council’s designated agent inspecting compliance in a covered sector, who can enforce against the client of a labour broker as if it were the employer.
Fixing it
The instinct to leave it alone and hope is understandable and wrong, because every month of continued engagement adds to the exposure. There are three sensible routes, and which one fits depends on whether the relationship is continuing.
If it is continuing and the facts point to employment, convert properly: put the person on the correct contract from a stated date with the section 29 particulars, register them for the Unemployment Insurance Fund and with the Compensation Fund, start withholding, and take advice on the historical position before deciding what to disclose. A conversion that changes the paper but not the practice fixes nothing.
If it is continuing and the facts genuinely point to independence, tighten the arrangement so the facts and the document agree: a defined result, freedom over method and hours, the contractor’s own equipment, a real right of substitution, no exclusivity, and invoicing. See contractor and consultancy agreements.
If the relationship is ending, a mutual separation agreement in full and final settlement is the ordinary instrument, and it is enforceable. The Labour Appeal Court has confirmed that parties may conclude one even while operational requirements are under discussion:
And the Constitutional Court has been clear about the weight such a settlement carries once signed:
That cuts both ways, which is why a separation agreement should be drafted rather than downloaded: it needs to deal with the tax directive, the restraint, company property, references and the scope of the release.
Common questions
Labour side: up to 12 months’ remuneration (24 if automatically unfair), plus back-pay for leave, notice, overtime and severance, arrear UIF and Compensation Fund contributions, and a minimum-wage fine of twice the underpayment. Tax side: the employer is liable for the employees’ tax it should have withheld, with penalties and interest. The two run together.
No. The Labour Court held such an arrangement remains a sham even though the worker consented to it. Consent matters where bargaining power was roughly equal and the deal was genuine; it cannot cure an arrangement designed to strip statutory protection.
Four ways, none convenient: a CCMA referral when the engagement ends; a UIF claim that finds no registration; an injury with no Compensation Fund cover; or a SARS audit asking why payments were not subjected to employees’ tax.
Usually: put the person on the correct contract from a stated date, regularise the registrations, and take advice on the historical exposure. Where the relationship is ending anyway a mutual separation in full and final settlement is enforceable — parties are not lightly released from an undertaking seriously and willingly embraced.