We are currently doing a series titled “Contract Law in Zimbabwe”. This week we look at the key differences between employment contracts and a contract in which an independent contractor is engaged. We also consider how the courts in Zimbabwe determine which category the contract falls under, between the two. As well as potential risks for employers, in misclassifying the contract.
| Employment contract | Independent contractor contract |
| Regulated by Labour Law and contract law. Labour law deals with the relationship between the employer and employee by stipulating certain requirements. The employment relationship is however recorded in a contract which sets out the terms and conditions of employment e.g. salary, benefits etc. | This is regulated by solely contract law. The parties are at liberty to agree to any terms to regulate the relationship, and where a dispute arises reliance will be placed on the terms of the contract as agreed to by the parties, unlike an employment related dispute where both contract law and labour law will be resorted to, to resolve dispute. |
| An employee is always a natural person i.e. a human being with legal capacity. | An independent contractor may be a natural person or a juristic person. |
| An employee works under the control and direction of the employer in terms of the work to be done. He or she is therefore a subordinate of the employer. | An independent contractor on the other hand is equal to the employer. |
| The employees working hours are fixed and clearly specified in the employment contract. Moreover, the employee must carry out the employment role personally. | The independent contractors’ working hours are flexible and hardly ever specified in the contract. In addition, the independent contractor may carry out the services personally, or subcontract the services. |
| The employer is usually obliged to provide tools and raw materials for the employee to carry out its services. | The independent contractor provides his own tools and supplies to carry out the work it has been contracted for. |
| The employee is paid a salary and entitled to additional benefits like bonus, leave, etc. The employer is also obliged to make statutory payments on behalf of the employee like PAYE, AIDS levy and NSSA | The independent contractor is paid in terms of the contract and is not entitled to additional compensation beyond the figure agreed to in the contract. Moreover, the contractor is responsible for paying their statutorily imposed charges like tax etc. |
Corporates should always consider carefully the advantages and disadvantages of engaging an Independent Contractor as opposed to hiring an Employee, depending on the specific requirements and type of project. Other relevant considerations in making the decision include the length of time, skill requirements and labour law rules.
Some advantages of the Independent Contractor over the employee contract include the following:
- Independent contractors may be cheaper than employees to engage as they are engaged for a particular project or limited duration to carry out predetermined activities. They may therefore be engaged in period where the work is plentiful, unlike employees, who regardless of the volume of the work must be paid.
- There is less administration when an independent contractor is engaged as opposed to an employee because the independent contractor is autonomous in its operations, with flexible working hours, and no requirement for statutory leave or statutory payments. The independent contractor pays his own taxes and largely regulates his own affairs.
- Payroll costs including payroll taxes as well as vacation, retirement, and insurance benefits are not required to be paid to Independent Contractors. These types of costs can increase your total payroll and benefit expense amounts by twenty to fifty percent or more per year.
- Independent Contractors normally work more efficiently and therefore the job is done faster because they are highly skilled in certain areas. In this regard, when choosing an independent contractor, one considers the qualification and skills possessed by the contractor, and usually they do not need to be trained like most employees. In this way independent contractors are effective in their work right from the onset.
How Courts Determine if the contract is one of employment or independent contractor
The court would, in instances where the contract contains both features of employment and of independent contractor, weigh the factors and come up with a dominant impression to ascertain the type of contract. The court would predominantly consider whether the individual engaged is in a position of economic dependence and the flexibility of the working hours. The court will also consider the manner in which the said individual is remunerated in determining whether the individual is an employee or independent contractor.
Employers may face steep fines from the Ministry of Labour and potential lawsuits from employees for intentionally or unintentionally misclassifying an employee as a contractor. When a court determines a worker is an employee and was incorrectly classified as a contractor, the employer may also be required to pay the employee retrospective vacation pay, overtime pay, and pay in lieu of notice if the employee has been terminated. Additionally, the employer may also face hefty fines, tax bills, interest, and other penalties for avoiding tax obligations through misclassification, such as income tax, PAYE and other such statutorily levied charges.
Conclusion
In conclusion, it is important for employers to carefully consider whether they seek services of an independent contractor or an employee and ensure that the contract engaging same properly captures the appropriate terms to ensure that, it is easily determinable from the contract, the capacity the individual is engaged in. This will ensure the individual is appraised of their status and also prevent potential fines or issues should the contract be challenged in court.
The information and opinions expressed above are for general information only. They are not intended to constitute legal or other professional advice. For clarification, assistance, or any questions please contact Lex Amicus, by email at: lexamicus@outlook.com.
Lex Amicus 