Converting independent contractors into full-time employees in Africa

Independent contractors are increasingly popular in Africa, driven by workers seeking flexibility and companies needing diverse talent. However, working with contractors comes with risks, including navigating country-specific labour regulations and tax laws. Let’s explore these risks and why converting contractors into full-time employees may be a worthwhile consideration.

Independent contractor v/s employee

The distinction between an independent contractor and an employee is critical, as it has significant legal and regulatory implications across Africa. Worker misclassification—when an independent contractor performs duties more aligned with an employee—can result in fines, back pay, and reputational damage.

Each country has specific criteria for determining worker classification.
In South Africa, for instance, independent contractors must meet several conditions, such as being a resident, not acting as a labour broker, working independently, and fulfilling tax obligations to the South African Revenue Authority.

In Ghana, additional factors are considered, including economic dependence, time investment, and the opportunity for profit or loss. The Ghanaian Internal Revenue Service also adheres to specific guidelines for classifying workers.

Taxation

As in most regions, taxation in Africa is strictly regulated. Independent contractors are responsible for filing and paying their own taxes, a responsibility that shifts to the employer when a contractor becomes a full-time employee.

This transition requires the employer to handle tax deductions and contributions, which is manageable with an efficient payroll system. However, a potential consequence is that the newly employed worker may earn less after taxes, leading to possible requests for higher compensation—an expense that must be considered alongside statutory benefits.

Operational risks

1. Lack of control & commitment Independent contractors have the freedom to choose how, where, and when they work, which can lead to challenges if their pace or methods differ from your company’s needs. While you may want to implement specific practices to boost productivity or standardise output, exerting control over contractors risks misclassification. Additionally, contractors may be unavailable for urgent tasks if they are committed to other clients. Full-time employees tend to be more committed and readily available to support in critical situations.
2. Intellectual Property In many African countries, like Nigeria for example, the copyright to any work created rests with the creator unless otherwise specified. But the copyright to work created by an employee within the course of their employment belongs to the employer. Having employees poses significantly fewer risks with regards to a company’s Intellectual Property.
3. Unexpected Costs Should an independent contractor be wrongly classified as such, and should the local authorities find you guilty of employee misclassification, there would be much at stake. This includes paying hefty fines for violating worker rights, back payments for all the shortfalls experienced by the misclassified contractor/employee, as well as other financial and reputational penalties.
4. Insurance and Liability Independent contractors do not receive regular employee benefits – including health and life insurance. But this doesn’t mean contractors do not face the same risks as employees – it only means they are less protected. Should an independent contractor get hurt or otherwise suffer from an incident at work, they would not be protected by insurance – and may instead seek compensation from your company, creating significant liability.

Key considerations for companies making this transition

Companies looking to convert contractors into full-time employees should consider:

1. Assessing Current Workforce Evaluate your current contractors to determine if they meet the criteria for independent contractor status or if their roles suggest they may qualify as employees. Consider the necessity of their skills and the financial implications of converting them. If conversion is not viable, ensure contractors strictly adhere to the independent contractor definition to prevent misclassification issues.
2. Partnering with an EOR When operating in Africa, it can be difficult to assess who is an independent contractor and who is an employee, since the definition changes from country to country. Many companies without an entity in Africa choose to partner with an Employer of Record (EOR). An EOR provides services within one solution: onboarding, payroll, legal compliance, expert knowledge, risk mitigation, and more. It is critical to choose an EOR with African expertise and a deep understanding of local labour laws.
3. Long-Term Planning Workforce management is not a one-time task but a continuous process. Misclassification risks can arise at any time. Partnering with a specialised partner like an EOR ensures compliance and ongoing workforce alignment.

Converting independent contractors into employees: the takeaways

If you are choosing to work with an independent contractor in Africa, it is necessary to consider the risks: from misclassification (a legal offence), to the financial penalties of back pay, to operational issues because contractors cannot be told how, when, or where to work.

Conversely, it is also worth noting the many advantages of transitioning to full-time employees: more control over work, ownership of intellectual property, avoiding unexpected costs, and being able to protect employees fully under the law.

If you would like to have a business presence in Africa but do not have an entity, an EOR solution may be the most suitable option. In both the short and long term, EORs mitigate risks, taking on the full burden of compliance and major HR tasks such as payroll – all with the goal of supporting your business growth in Africa.