Commission-based work in South Africa is widespread across industries like sales, insurance, real estate, and hospitality. These roles often reward performance, but also raise an important legal question: Are commission earners employees or independent contractors? The distinction matters. Misclassifying workers can lead to serious legal and financial consequences. This article provides guidance to help employers correctly categorise commission earners and remain compliant with South African labour law.

Defining Commission-Based Work

Commission workers earn income based on their performance, typically through sales targets or other output-driven goals. These arrangements generally fall into two categories:

  • Commission-only – Employees do not earn a base salary, and their income is entirely commission-based.
  • Basic salary + commission: An employee earns a fixed salary, which is supplemented by commission earnings.

While these models are designed to drive productivity, they do not override labour laws. The key issue is not how a worker is paid, but the nature of the working relationship. This determines whether a commission earner is legally classified as an employee or an independent contractor.

Employee vs Independent Contractor

South African labour law provides guidance for distinguishing between employees and independent contractors. Broadly speaking, section 213 of the Labour Relations Act (LRA) defines an employee as someone who works for another person or the State in return for payment, excluding independent contractors.

On the other hand, section 83A of the Basic Conditions of Employment Act (BCEA) introduces a presumption of employment if certain factors are present, such as:

  • Being subject to the employer’s control and direction
  • Working set hours
  • Being integrated into the business
  • Working more than 40 hours per month for over three months
  • Economic dependence on the employer
  • Using the employer’s equipment
  • Working mainly or exclusively for one employer

This presumption only applies to individuals earning below the annual earnings threshold. Above this threshold, the presumption does not apply, but courts may still use other tests to determine employment status.

In addition, courts apply what is known as the “dominant impression” test, which assesses the overall nature of the working relationship. This test is done by using factors such as the degree of control exercised by the employer, the worker’s level of integration into the business, and their economic dependence, as well as the exclusivity of the employment relationship. This principle was clearly illustrated in Linda Erasmus Properties Enterprise (Pty) Ltd v Mhlongo and Others (J1604/04). In this case, a commission-based real estate agent was labelled an independent contractor in her contract. However, the court found that the company exerted significant control over her work, requiring attendance at meetings, following office rules, and seeking approval for documentation. Despite the contractual label, the dominant impression was that she was economically dependent and under close supervision. The court ruled she was an employee under the LRA.

Legal and Operational Implications of Misclassification

Once a commission worker has been classified as an employee, does this obligate the employer to ensure they earn at least the national minimum wage when compensated solely on a commission basis? The answer is yes. A common myth is that commission-only employees are exempt from the National Minimum Wage Act (NMWA). In fact, the law requires that all employees, including those earning commission only, must be paid at least the national minimum wage for hours worked.

To comply with this requirement, employers must ensure that commission workers receive no less than the national minimum wage for their hours worked, either through commissions alone or through a commission-supplemented salary. This makes accurate record-keeping of hours essential. If commissions fall short of the minimum wage threshold in any pay period, the employer is legally obligated to make up the difference. Beyond minimum wage compliance, properly classified employees are entitled to a range of statutory protections, including, but not limited to, paid annual and sick leave, public holiday pay, overtime pay, protection against unfair dismissal, and access to dispute resolution forums such as the Commission for Conciliation, Mediation and Arbitration (CCMA). Misclassifying employees as independent contractors can lead to costly legal disputes, back payments of benefits, and penalties for non-compliance.

For these reasons, it is vital that businesses and workers clearly define their working relationship to reflect the true nature of the work performed and avoid the serious consequences of misclassification.

Conclusion

Commission-based workers may legally be classified as employees or independent contractors, not based on how they are paid, but on the true nature of the relationship. Employers should apply the presumption of employment test (if applicable) and the dominant impression test in their workplace to ensure that they can maintain a strict distinction between employees and independent contractors. To protect both parties and remain compliant, it is essential to accurately classify the working relationship, formalise the arrangement in writing, and seek legal advice where needed. Proper classification helps avoid costly mistakes and ensures fair treatment in the workplace.