Many experts say – whether big or small – a business’ staff compliment is where your real value lies. We often speak of “human capital” as a result.
Many businesses are reluctant to engage workers (permanently) as employees. This is predominantly due to the misconceptions regarding the labour laws in South Africa. In addition, many businesses are stretched by the trying economic times and are reluctant to commit to a permanent relationship – in fear of not being able to retain someone for the long haul.
So, when do you employ and when do you contract?
The employment relationship in general is regulated by the Labour Relations Act No. 66 of 1995 and the Basic Conditions of Employment Act No, 75 of 1997, as amended.
In addition, most notably, the employment relationship is a ‘vertical’ relationship. This means that the employee renders services (usually exclusively) to the employer under the control and direction of the employer. Employees are paid a salary that is subject to taxation that must be deducted by the employer.
Employees are also expected to dedicate their energy and time to the furtherance of the business of the company.
Related: 3 Things you should know about POPI
What is the difference?
As such, the structured regulation of the employment relationship and the parties’ knowledge of their respective rights are fundamental to the overall success of the relationship. To this end, although not compulsory – it is definitely recommended that employment contracts are reduced to writing and that it sufficiently details the expectations employers have of employees.
In addition, it is important to regulate expectations around time off, working times and remuneration.
Finally, reduce your human resources policies to writing so employees know the acceptable behavioural standards expected of them. Without all of these, employees are often unaware of the standard expected of them and as a result thereof unknowingly breach a provision of their contract.
Why contracts are important
This is particularly challenging to manage in a diverse workplace. And if unattended, this inevitably results in an undesirable culture in the workplace, which more often than I personally would like to admit ends in a dispute. The repercussions hereof are often challenging to manage. This is where the often unconsidered and unforeseen costs lie.
Dealing with workplace disputes can be expensive. However, the real expense lies in managing the relationships with the entire staff compliment and aligning it to the expectations serving the best interests of your company. A mammoth task mostly simplified by documenting a few expectations properly from the start.
In terms of independent contractors on the other hand, the relationship is not legislatively regulated.
In addition, no vertical relationship exists and remuneration is paid on rendition of invoice and is usually not subject to the deduction of taxes on the part of the business.
Contractors are further free to work for a number of businesses and not confined to one only. This means the costs are more competitive than employment costs and the associated risk of not being able to sustain the relationship over a long term, is lower.
It is useful to ‘contract’ with contractors in writing for much the same reasons as with employees – as it creates certainty. Importantly though, both parties should contract clearly so that both know what is expected of them, the remuneration paid and the terms of exit.
Unlike a rogue employee and the trickle effect this may cause if unmanaged, a rogue contractor’s behaviour is much more contained and if terminated, may leave a void which is much easier to manage.
Related: Want to exit the company? Here’s your shareholder exit strategy
It is easy to see why contractors may be preferred
Although there may be some benefits to outsourcing, it is usually not a long-term solution.
This, for the simple reason that the business’ needs grow and require exclusive committed contribution. As it grows more, ‘hands’ are needed or in terms of compliance with legislation such as Broad Based Black Economic Empowerment (BBBEE) Act No. 53 2003, as amended, a staff contingent may be required for compliance under certain elements.
It is therefore important to consider your business’ growth strategy and needs required when considering outsourcing versus employment.