Should a company Director be viewed as an employee or rather as an outside consultant? The answer is not straight forward and depends on a number of factors.
Before determining whether a Director is an employee or not, it is necessary to identify the Director’s role in the company. The overall function of a Director is generally focused on the governance of the business to deliver a return on the investment for the shareholders, but there are some variations in how this is implemented.
Under the Companies Act, 71 of 2008 (“the Companies Act“) as amended from time to time, a company may pay remuneration to a Director for their services as Director, unless it is prohibited by the company’s memorandum. Should this prohibit the payment of remuneration to a Director, the Director will not be entitled to remuneration for their services. However, if the majority of the shareholders agreed to payment for the Director’s services, such Director will be entitled to be paid. This does not necessarily mean the Director will be deemed an employee.
Most of the time this is informed by what is or will be expected/required from the Director.
A Director could be viewed as an employee (and therefore need an employment contract) if:
A Director may not be an employee if:
A Director is usually not deemed to be an employee if the intention is that they should provide “external”, objective input to the company in terms of direction, and not be involved in the day-to-day running of the company.
If the intention is that they should be more involved on a daily/regular basis with the day-to-day operations and receive regular remuneration for this assistance, then the Director should be viewed as an employee and receive an employee contract.
There are many ambiguous areas in human resources and labour relations that can be difficult to understand and implement correctly. If you would like further information or guidance with this, please make contact with us.
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