What the arrangement is called does not decide it. A person can invoice you monthly, call themselves a freelancer, and still be an employee in substance — with everything that follows for tax and for dismissal.
The consequences land in two directions at once, which is what makes this worth getting right at the start.
What actually decides it
Substance over labels. The questions that matter:
- Control. Do you direct how and when the work is done, or only what the result must be?
- Integration. Are they part of your organisation — your hours, your systems, your team meetings?
- Economic dependence. Do they work substantially or exclusively for you?
- Tools and premises. Yours or theirs?
- Substitution. Could they send somebody else competent in their place?
- Risk. Do they stand to profit or lose on the work, or are they paid for time regardless?
A genuine contractor runs their own business: several clients, their own equipment, their own methods, and commercial risk. Somebody who works your hours, at your desk, under your direction, mostly for you, is an employee whatever the invoice says.
The presumption
Labour law contains a presumption of employment where certain factors are present, below an earnings threshold. Where it applies, the burden is on the employer to show the person is not an employee — which is a considerably weaker position than most businesses assume they are in.
What it costs to get wrong
Tax. If SARS treats the person as an employee, the employees' tax that should have been deducted becomes your liability, with penalties and interest, and you cannot recover it from somebody who has already been paid.
Labour. A "contractor" who is found to be an employee can bring an unfair dismissal claim when the arrangement ends, and can claim leave and other entitlements retrospectively.
Both arrive at the same time and neither is discounted because the arrangement was mutual.
Be deliberate rather than convenient
Businesses do not usually set out to misclassify. They engage somebody for a short piece of work, it goes well, it continues, and three years later a freelancer is a full-time member of staff with an invoice instead of a payslip.
Review these arrangements annually and ask honestly whether the substance has changed. Where it has, regularise it — that conversation is straightforward now and expensive later.
When in doubt
Treat as an employee, or restructure the arrangement so it is genuinely contracting. The middle ground — an employment relationship documented as contracting — is the one position that carries the downside of both.
General guidance, not legal or tax advice. Classification is fact-specific and consequential; take proper advice.