UNDERSTANDING DIFFERENT TYPES OF EMPLOYMENT CONTRACTS

11 Types of Employment Contracts:  What You Need to Know

DIFFERENT TYPES OF EMPLOYMENT CONTRACTS

According to Vermeulen Attorneys the primary employment related issue that they are most often approached with by employees is that of fixed terms contracts.  Attorney, Chante Mouton says that employees often don’t read or understand the terms of their employment contracts before accepting resulting in them wanting to file a grievance against an employer.

An employment contract should be read in its entirety before being accepted. It is important to understand who is considered an employee and what the difference is between a permanent, fixed term and independent contractor.

Section 83A of the BCEA says that a person who works for or renders a service to another person, is presumed, until the contrary is proven to be an employee regardless of the form of contract if the following factors exists. The person’s hours and manner of work are subject to the control and direction of another, works on average of at least 40 hours per month over the last three months, is economically dependent on the person and is provided with the tools of trade or work equipment by that person or organisation.

Key Components of an Employment Contract.

Before delving into the types of employment contracts, it is crucial to understand the key components typically found in employment agreements:

1. Job Duties: Clearly outlines the roles and responsibilities of the employee.

2. Salary/Wages: States the agreed-upon compensation, including salary, hourly wage, or any other benefits.

3. Working Hours: Specifies the regular working hours, including any overtime expectations.

4. Duration of Employment: Indicates whether the employment is permanent, temporary, or for a specific project or duration.

5. Benefits and Perks: Details any additional benefits, such as health insurance, retirement plans, or other perks.

6. Termination Clause: Defines the conditions under which either party can terminate the employment, as well as any notice period.

7. Confidentiality and Non-Compete Agreements: Outlines any restrictions on the employee regarding disclosing company information or working for competitors.

8. Dispute Resolution: Specifies how disputes will be resolved, which may include arbitration or mediation.

9. Other Terms and Conditions: Includes any other relevant terms, such as probationary periods, intellectual property agreements, or specific policies and procedures.

TYPES OF EMPLOYMENT CONTRACTS IN SOUTH AFRICA

1.  Permanent Employment Contract.

A permanent contract is an indefinite contract where an employee is taken on by a company until the employee no longer wishes to work there or the contract ends in a termination of some sort. This type of employee is entitled to all forms of benefits provided by the specific organisation, such as medical aid, health insurance, retirement plans, and paid leave. Permanent employees are typically seen as long-term investments by the employer and may have opportunities for career advancement within the company.

Benefits of Permanent Employment Contracts:

• Job security.

• Comprehensive benefits package.

• Potential for career growth.

Considerations of Permanent Employment Contracts:

• May include non-compete clauses.

• Termination may require notice and severance.

2.  Fixed-Term Employment Contract.

A fixed term contract runs from an agreed start date and ends by a specified date or on the completion of a specific project ending the employment relationship, the duration of which should be agreed upon in advance. Fixed term employees are entitled to the same rights and benefits as those of permanent employees, depending on the duration of the contract. This form of contract is legal provided that it is used for the intended purpose of fulfilling a short-term assignment.

Legal Framework for Employment Contracts:

Earnings Threshold for Employment Contracts: As of April 1, 2024, employees earning less than R254, 371,67 per annum (R21,197,64 per month) are subject to specific protections under The Labour Relations Act (LRA).

Contract Duration for Employment Contracts: For employees earning below this threshold, fixed-term contracts can be used for a period of up to three months. If the contract duration exceeds three months, the employer must have a justifiable reason. Justifiable reasons can include, but no limited to:

• Replacing a temporarily absent permanent employee.

• Employment for a specific project with a limited duration.

• Seasonal work.

• Temporary increases in workload not expected to last more than 12 months.

Conversion of Fixed- Term Employment to Permanent Employment: If an employee earning below the threshold is employed on a fixed- term contract for more than three months without a justifiable reason, the contract may be deemed permanent, entitling the employee to all benefits and protections of permanent employees.

The Labour Relations Act states that if an employee is compensated below the legal threshold of R254,371,67 per annum a fixed term contract is limited to a period of 3 months and may only be extended if there are justifiable reasons for doing so. It is also provided that should the contractor be employed for longer than 3 months without justifiable reason, this employee would be deemed to be permanent and would be entitled to all the rights and benefits of a permanent employee. However, it must be noted that other factors do apply.

Benefits of Fixed-Term Employment Contract:

• Defined duration of employment.

• Suitable for project-based work.

Considerations of Fixed - Term Employment Contract:

• May not offer long-term job security.

• Rights and benefits are contingent on contract duration.

3.  Independent Contractor Agreement.

An independent contractor is not an employment contract at all but a contract for services. A true independent contractor is a person who is registered as a provisional tax payer, works their own hours and runs their own business. This type of contractor is free to carry out work for more than one employer simultaneously and is not entitled to any additional benefits as provided to permanent employees. This contractor issues invoices for their work, which are not subject to statutory deductions like PAYE and UIF.

Characteristics of an Independent Contractor Agreement:

• Works independently, not under the employer's control.

• Provides own tools and equipment.

• Invoices for services rendered.

Benefits of an Independent Contractor Agreement:

• Flexibiity and control over work.

• Ability to work for multiple clients.
  

Considerations of an Independent Contractor Agreement:

• No entitlement to employee benefits.

• Responsible for own taxes and insurance.

4.  Part-Time Employment Contract.

Part-time contracts are for employees who work fewer hours than a full-time employee. The terms of the contract, including the working hours and entitlements, are specified. Part-time employees are typically entitled to the same benefits as full-time employees but on a pro-rata basis.

Benefits of Part-Time Employment Contracts:

• Flexible working hours.

• Entitlement to benefits on a proportional basis.

Considerations of Part-Time Employment Contracts:

• May not offer the same level of job security as full-time positions.

• Pro-rated benefits and entitlements.

5.  Casual Employment Contract.

Casual contracts are typically used for employees who work on an irregular or as-needed basis without a guaranteed number of hours. Casual employees are often paid hourly and may receive a higher rate to compensate for the lack of job security and benefits:

Benefits of Casual Employment Contracts:

• Flexibility in work hours.

• Higher hourly pay rate.

Considerations of Casual Employment Contracts:

• No guarantee of regular work.

• Limited or no access to benefits.

6.  Zero-Hours Contract.

Zero-hour contracts do not guarantee any specific number of working hours. Employees are called to work only when needed, and they can accept or decline work offers. This type of contract is common in industries with fluctuating demand, such as hospitality and retail.

Benefits of Zero-Hour Contracts:

• Maximum flexibility for both employer and employee.

• Suitable for those needing irregular work schedules.

Considerations of Zero-Hour Contracts:

• Unpredictable income.

• Limited job security and benefits.

7.  Seasonal Employment Contract.

Seasonal contracts are used for work that is dependent on a particular season or time of year. Examples include agricultural work during harvest season or retail jobs during holiday season.

Benefits of Season Employment Contracts:

• Employment during peak seasons.

• Often repeated annually.

Considerations of Season Employment Contracts:

• Employment is limited to certain times of the year.

• May lack benefits outside the working season.

8.  Temporary Employment Contract (Temp Work).

Temporary contracts are used for employees hired for a specific short - term assignment or to cover for an absent permanent employee. This can be similar to a fixed-term contract but usually involves hiring through a labour broker who will administer the employees payroll.

Benefits of Temporary Employment Contracts:

• Opportunity to gain experience and skills in various roles.

• Can lead to permanent employment.

Considerations of Temporary Employment Contracts:

• Short-term nature of work.

• May not offer benefits.

9.  Freelance Contract.

Freelancers are self-employed individuals who offer their services to various clients on a project-by-project basis. Freelance contracts specify the scope of work, payment terms, and deadlines.

Benefits of Freelance Contracts:

• High degree of flexibility and autonomy.

• Ability to choose projects and clients.

Considerations of Freelance Contracts:

• No employee benefits.

• Irregular income and the need to manage own taxes and insurance.

10.  Apprenticeship Contract.

Apprenticeship contracts combined employment with training, allowing individuals to earn a wage while gaining qualifications and skills in a specific trade or profession. Apprenticeships are usually fixed-term and are often supported by government schemes.

Benefits of Apprenticeship Contracts:

• Structured training and development.

• Earning while learning.

Considerations of Apprenticeship Contracts:

• Lower initial wages compared to fully qualified workers.

• Commitment to both work and training requirements.

11.  Internship Contract.

Internships are typically short - term contracts designed to provide students or recent graduates with practical experience in their field of study. Interns may be paid or unpaid, depending on the company's policy and local labour laws.

Benefits of Internship Contracts:

• Valuable work experience and industry exposure.

• Networking opportunities.

Considerations of Internship Contracts:

• Temporary and often short-term.

• Limited pay and benefits.

Important Considerations When Reviewing Employment Contracts.

When presented with an employment offer, it is essential to read the contract thoroughly.  Understand and be clear on the terms offered before accepting. Consult a professional or discuss with your prospective employer immediately to avoid unnecessary future disappointments.

Tips for Reviewing Employment Contracts:

Seek Legal Advice: If unsure about any terms, consult with a legal professional.

Clarify Ambiguities: Ask the employer to clarify any ambiguous terms or conditions.

Consider Future Implications: Think about how the contract terms might impact your future career and personal life.

Negotiate: Don't be afraid to negotiate terms that don't meet your expectations or needs.

By understanding the various types of employment contracts and their key components, employees can make informed decisions and protect their rights in the workplace. Employers, on the other hand, can choose the most appropriate contract type for their hiring needs, ensuring fair and lawful employment relationships in South Africa.