Do your clients support independent contractors? They still need to comply with the Compensation Act.

Employing smaller companies as sub- or independent contractors allows businesses more flexibility and allows local contractors to expand their business. But, did you know that as the mandator, your client might be held civilly liable for any costs or compensation in case of work-related injuries or illness?

According to Section 22 of the Compensation for Occupational Injuries and Diseases Act, no 130 of 1993 (COIDA), all employees have the right to compensation where they are injured, disabled or become ill as a result of a workplace incident or work-related disease. It is, however, important to note that there is a difference between an ‘employee’ and an ‘independent contractor’.

The Labour Relations Act, no 66 of 1995 makes this distinction when it defines an employee as “any person, excluding an independent contractor who works for another person or for the State…”. The situation is viewed differently when an independent contractor or one of their employees is injured, disabled or becomes ill due to any incident that takes place on the mandator’s premises, or on a place where the mandator had undertaken to execute any works.

In practice, the sub-contractor should be registered as the employer of his/her workers and be responsible for COIDA-related costs. If the sub-contractor has not done this, your client in the role of mandator/contractor automatically becomes the employer and will be held responsible by default.

Section 89 (1) of COIDA titled Contractors and sub-contractors specifies who carries what responsibility in this instance:

1. If a contractor in the course of or for the purposes of his or her business enters into an agreement with a sub-contractor for the execution by the subcontractor of the whole or any part of any work undertaken by the contractor, the subcontractor shall, in respect of its employees employed in the execution of the work concerned, register as an employer in accordance with the provisions of the Act and pay the necessary assessments.
2. If a sub-contractor fails to register or pay any assessment, the said employees of the sub-contractor shall be deemed to be the employees of the contractor, and the contractor shall pay the assessments in respect of those employees.

Fortunately, there are various mechanisms in place to protect companies when it comes to COIDA. Firstly, make sure that all Contractors’ All Risk, Construction Liability and Professional Indemnity policies are up to date.

The mandator should always request a Letter of Good Standing from any sub-contractor. This is a certificate from the Compensation Fund that verifies that a business exists, has paid all its statutory dues, has met all relevant filing requirements and is subsequently authorised to operate. The Construction Regulations as promulgated under the Occupational Health and Safety Act, 1993 also requires that contractors (and sub-contractors) are registered and in good standing with the Compensation Fund, or with a licensed compensation insurer.

COIDA does provide your clients with a measure of protection, too. As the mandator/contractor, the Act allows them to pay the assessment fees relevant to the employees in question – and to recover these fees from the sub-contractor. Alternatively, this amount may be set off against any monies owed to the sub-contractor.

Sub-contractors must be aware that certain conditions must be met to apply for a Letter of Good Standing. These specify that:

• employers must be registered with the Compensation Fund as per section 80 of the COID Act;

• employers must have submitted all returns of earnings as per section 82 of the COID Act;
• employers must be fully assessed as per section 83 of the COID Act;
• employers must have settled all outstanding debt as per section 86 of the COID Act; and
• employers that have entered into an instalment arrangement will only be issued with a letter of good standing on a monthly basis.

While COIDA exists to protect employees and employers alike, it makes good business sense for your clients to know their rights. They also need to be aware of the options and opportunities available to cover them and their business against eventualities and unforeseen, unexpected claims and compensation costs. Provide your clients with tools they need to make sure their house is in order before entering into any contract with an independent or sub-contractor. Advise them to always request a Letter of Good Standing. If a sub-contractor cannot provide one, it might be prudent to reconsider their options.