There are two main types of employment contracts in South Africa. They are permanent (indefinite-term) contracts and fixed-term employment contracts. There are also sub-category type contracts with especially defined terms and conditions for employment contracts. These pertain to independent contractors, part-time and casual workers as well as job contracts for apprenticeships and project-based work.

South African employment contracts are regulated by the Basic Conditions of Employment Act (BCEA). Each type of employment contract has nuances which practically mean that they have distinct characteristics and legal implications. To ensure compliance means understanding which laws pertain to employing someone in South Africa and what the relevant requirements thereof are.

Understanding the distinctions between the types of employment contracts isn’t just important for HR professionals and recruiters. It empowers skilled individuals to negotiate better terms and helps corporates make more strategic, risk-aware hiring decisions. This article unpacks labour law in South Africa and the way it applies within different employment situations. Additionally, it looks at the key differences between employment contracts in South Africa and when each type of employment contract should be used.

Labour Laws in South Africa

The basic rights and protections of employees and employers are outlined in the South African Labour laws. Together the South African Constitution, specifically the Bill of Rights (chapter 2, section 7-39), outline the foundational requirements for employment contracts.

6 Key South African Labour Laws

1. The Basic Conditions of Employment Act (BCEA).
2. The Labour Relations Act (LRA).
3. The Employment Equity Act (EEA).
4. The National Minimum Wage Act (NMWA).
5. The Compensation for Occupational Injuries and Diseases Act No 130 of 1993 (COIDA).
6. Protected Disclosures Act (PDA).

What is a Contract of Employment?

The two basic employment contracts in South Africa are the permanent or indefinite-term contract and a fixed-term contract. These two types of work contracts are the foundations of specialised job contracts such as those used for apprenticeships and casual workers.

Employers should note that even where there is no employment contract, a worker is still protected by South Africa’s labour laws. Accordingly, rather than allow someone to work without a contract, at minimum a letter of employment should be issued. However, it is strongly advised for all parties to sign a formalised job contract before work commences.

Permanent Employment Contracts in South Africa

A permanent employment contract is also known as an indefinite-term work contract. It’s defining feature is that it has a starting date but no end or termination timeframe. It requires a talent recruitment process and long-term staff management.

4 Key Features of Permanent Employment Contracts

• Applicable to long-term, full-time employees.
• No defined period.
• Affords full statutory benefits.
• Can only be terminated by resignation, retrenchment or valid dismissal as regulated by the Labour Relations Act (LRA).

Fixed-Term Contracts in South Africa

South African Employers generally revert to the use of Fixed Term Contracts (FTC’s) when an interim employee solution is needed for short term support. Typically, this could be seasonal increases in work load, relief work to cover for employee absence due to illness, or maternity leave.

FTCs are also often used to employ someone with specific expertise on projects or in positions that can reasonably be expected to run for longer periods. In these cases, the FTC will be time bound or bound to the conclusion of a task.

It’s important to remember that repeated FTC renewal, beyond a period of three months, can result in a reasonable expectation of permanent employment. This is especially relevant when contracting employees earning below the BCEA threshold. Here non-renewal or termination of employment can result in an unfair dismissal dispute claim being lodged against the employer. To guard against this, employers should include a statutory justification, as outlined in the LRA (section 198B (4)), included in FTCs.

4 Key Features of a Fixed-Term Contract

• Applicable to temporary, short-term employees (under three months). For example, project-based roles, seasonal work and maternity coverage.
• Has a defined period with an expiry date to automatically end contract.
• Statutory benefits aren’t always applicable and may only be offered pro-rata.
• Cannot be used for a permanent job.

Understanding Specialised Employment Contracts in South Africa

The basic fixed-term contract and permanent contract is often adjusted to suit various situations. Here are 8 situational examples of specialised contracts and how they are used.

1. Executive Employment Contracts:

These are used for high-level employees. They are highly customised contracts that have clearly defined deliverables which have a strategic responsibility facet. Often remuneration has a performance-based component and includes perks such as allowances.

2. Part-Time Employment Contracts:

Used when specific and limited hours are required to do a job. Part-time workers are afforded the same labour and legal rights as full-time employees, however, if applicable, benefits are pro-rata.

3. Casual Employment Contracts:

Applicable when work required is less than 24 hours in a month and usually on an as-needed-basis. They are required to be paid in line with the Minimum Wage Act. Within a work environment, casual workers are generally treated the same as part-time employees.

4. Temporary Employment Contract:

Usually used in situations where someone is employed for less than 3 months within a stop-gap capacity. For example, filling in for someone on maternity leave or adding capacity during a peak business time. If repeatedly renewed a temporary employee can become recognised as a permanent employee from a legal perspective.

5. Apprenticeship (Learnership) Contracts:

The purpose of this type of employment is skills development. As such participants are given stipends not salaries. Their employment is regulated under the Skills Development Act.

Notable is that South African law does not formally recognise “zero-hour” contracts. Some employers use zero-hour contracts in situations where work requirements are ad hoc. Therefore, within contexts where there is no guarantee of future work or hours required. While this might work for both the employer and employee it does run the risk of creating an exploitative situation and thereby contradicting labour contract laws.

Employment Contracts vs Employment Agreements

There are some significant differences between an employment agreement and an employment contract. Under an employment agreement someone agrees to perform a specific service or task and once completed will be paid accordingly. Practically this means that the employer directs what end result they want but usually doesn’t direct how the task is completed. In contrast, under the terms of an employment contract a person agrees to render their services for either a specified or unspecified length of time. This means that the contracted person (employee) has to act in accordance with the employer’s instructions and directives. Essentially, an employment agreement is a contract for services where as an employment contract is a contract of services.

An employment agreement is a general understanding, it can be written, verbal or implied. Within a working relationship its focus is on providing a specific service. Included would be the scope and general expectations around timeframes, milestones and points of contact. Those working under an employment agreement are not protected under the Labour Relations Act or the Basic Conditions of Employment Act. Notable is that a restraint of trade cannot be enforced within a contract for services / employment agreement context.

4 Key Features of an Employment Agreement

• Applicable for contracted services not employment. For example, freelancers, independent contractors and outsourced specialists.
• Has defined service requirements with agreed upon deliverables in a set timeframe.
• No statutory benefits.
• Contracted services are regarded as being supplied by a business entity operating independently.

 Examples of Employment Agreements

1. Independent Contractor Agreements: These contracts are signed with people who supply a specific deliverable or service. Contractors operate independently from the company and are not employees. Accordingly, they are not protected by the same labour acts as company employees, have no statutory employment benefits. They are also responsible for their own tax, insurance and compliances.
2. Freelancer Agreements: Used when contract services are supplied to a company at a per hourly or packaged project rate. Freelance contracts outline timelines with set milestones and end deliverables. They often include a non-disclosure clause. Freelancers are regarded as independent contractors, therefore do not have the same rights or protections as an employee. Accordingly, they are responsible for their own taxes and insurance.

Why You need to be Cautious of Hybrid Contracts and Agreements

One of the most overlooked aspects of any work agreement, whether you’re hiring or being hired, is in the contractual wording. Increasingly, companies are engaging freelancers and independent contractors using hybrid-style contracts. Often a hybrid contract includes clauses that resemble traditional employment terms, such as exclusivity or restraints of trade. However, it simultaneously deliberately excludes the protections and benefits that come with formal employment under South African labour law.

For career seekers, this means you could be expected to operate like an employee. For example, following set hours, avoiding competing work, and adhering to company policies. But without receiving the legal safeguards employees are entitled to, like paid leave or protection against unfair dismissal. As such it’s very important to fully understand what you’re signing since a hybrid contract can result in damaging not enhancing a career.

For hiring managers, misclassifying a worker can lead to compliance risks and reputational damage. Especially if a hybrid contract imposes employee-like restrictions without offering corresponding rights. Therefore, from a company perspective it is essential to ensure that the contract accurately reflects the nature of the working relationship.

What is a Probationary Clause?

Probationary clauses can be included in any type of employment contract. The purpose of a probationary period is to afford both an employer and employee the opportunity to see if a job and/or candidate are a suitable fit. They are often used as a pre-curser to signing a permanent employment contract. Accordingly, they establish a conditional agreement whereby someone’s employment is not guaranteed until the end of the probationary period. Typically, the duration of a probationary period is 3-6 months and it has to comply with the LRA and BCEA. Consequently, termination of a probationary contract requires due process.

When Should a Fixed-Term Employee Sign a Permanent Contract?

There are numerous reasons why someone working a fixed-term contract would benefit from signing a full-time employment agreement. Similarly, for a company there are advantages of having a permanent employee instead of a temporary worker.

Reasons to sign a permanent employment contract include job security, financial stability, paid leave and work benefits. Often access to upskilling and opportunities for career development are better for permanent employees than they are for temporary staff. From an employer perspective, permanent staff tend to be more loyal and the result is usually a more stable and reliable workforce. When permanent staff are correctly managed retention rates are high and a good company culture can be established. This means that companies retain institutional knowledge which assists in fostering efficient and effective productivity.

There are some disadvantages of going permanent, these need to be weighed up against the advantages of a fixed-term contract. For example, fixed schedules generally mean less flexibility. Signing an indefinite job contract can also restrict future earning potential. Additionally, some people feel like they’re “stuck” and get bored if their job is not varied, which is more likely in a permanent role.

Contract Termination in South Africa

The termination of contracts in South Africa is regulated by labour laws. Practically this means that how to terminate employment in South Africa is according to the substantive fairness of dismissal reasons outlined in Section 188 of the LRA.

According to Section 188 of the Labour Relations Act (LRA), substantively fair dismissal is applicable in situations of misconduct, incapacity and operational requirements (retrenchment). When this is the case the reasons for dismissal are regarded as valid and fair. A dismissal is required to be in accordance with the fair procedure. This due process is outlined in Schedule 8 of the LRA, Code of Good Practice: Dismissal.

Why do Companies Use Employer of Record (EOR) Services for Employee Recruitment and Management?

Navigating the nuances and requirements of South African Labour Law requires an expert. This is because the labour employment requirements in South Africa are subject to changes which have mandatory requirements. Using an EOR service to recruit talent and then manage it enables a company to focus on what they do best – providing quality goods and services. Additionally, good employee management has been shown to decrease attrition rates, foster company loyalty and attract high-calibre staff.

The Key Recruitment Group is an experienced EOR service provider. The Key Recruitment EOR service is a comprehensive package which oversees the recruitment processes and onboarding of successful candidates. Thereafter our EOR service provides further support by managing functional areas such as Human Resource Management and administration of payrolls. Included is an advisory service as well as connecting clients with reliable service providers. Contact Us Today to find out more about how our Recruitment and EOR Services can augment your business expansion through trusted skilled talent recruitment and management.

 

FAQs:

How do permanent and fixed-term contracts differ in South Africa?

A permanent contract is applicable for ongoing employment situations which have no expiry date. Whereas a fixed term contract has a start and deemed end date.

What are the rights of full-time vs part-time workers in South Africa?

In South Africa all full-time and part-time workers are equally protected under the South African Labour laws. Therefore, have the same rights and responsibilities. However, the application of the Basic Conditions of Employment Act (BCEA) and the National Minimum Wage Act diverge due to differences in work hours. 

What legal protections do casual workers have in South Africa?

Casual workers who work less than 24 hours a month have limited legal protection in South Africa. Those employed for 24 or more hours per month are protected under the Basic Conditions of Employment Act (BCEA).