Lesotho is often called the Kingdom in the Sky because of how breathtakingly beautiful it is. These aesthetic views, coupled with the rich cultural heritage, attract niche tourists, especially those interested in wildlife viewing and cultural immersion. Although the tourism industry is still comparatively smaller than other African nations, it is growing thanks to government initiatives.

In addition, Lesotho has other business opportunities in the textile industry, agriculture, and mining. Lesotho’s economy is primarily driven by agriculture, textiles, and remittances from Basotho workers employed in South Africa. According to the International Monetary Fund (IMF), Lesotho’s GDP per capita is USD 1,110, while the annual GDP growth sits at 2.3%.

Although the country’s literacy rate is not comparable to that of the Western world, it’s still high by regional standards. In 2022, 82.01% of the population could read and write in Lesotho. However, the good news is that Lesotho spends 6.69% of its GDP on education, which is much higher than the global average of 4.4%. The investment in education is expected to improve the country’s literacy rate and human capital in the coming years.

Another factor that makes Lesotho an attractive location for contract work is its young workforce. With a median age of 21.8 years, the country has a dynamic and adaptable labor force. Plus, mobile penetration in Lesotho is 104.2% of the population, which means that almost every person has access to a mobile phone and internet connection.

Some other notable statistics about the country’s economy and business potential are as follows.

  • Lesotho’s exports have a value of USD 1.14 billion. The top exports include diamonds, wool, knit t-shirts, and non-knit men’s suits.
  • Lesotho’s main export partners are South Africa, Belgium, the US, the UAE, and India.
  • The country enjoys bilateral investment protection with the UK, Switzerland, and Germany. Its proximity to South Africa also makes it a strategic location for businesses.
  • Lesotho has also been a member of the World Trade Organization (WTO) since 1995. So, businesses operating in the country can access international markets through WTO agreements.
  • Around 38.9% of Lesotho’s population is self-employed, which is close to the global average of 40.5%.

As you can see, a significant percentage of Lesotho’s population works as freelancers or independent contractors. Businesses in the country don’t have trouble finding the right talent for their needs. However, issues arise when non-compliance with local employment and tax laws occurs.

Lesotho, like any other country, classifies independent contractors and full-time employees differently. The former do not enjoy the same benefits or legislative protections as the latter. So, it’s important for businesses to know about these distinctions and treat their workers in the country accordingly. The following guide explains everything from these distinctions to the right way to convert a contractor into a full-time employee.

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What Are Independent Contractors in Lesotho?

Independent contractors in Lesotho are self-employed professionals who offer services to businesses or individuals without being classified as employees. They work under their own name or through freelance platforms and take on multiple clients.

Since they manage their own taxes and work schedules, they enjoy a high level of independence. However, the downside is that they do not receive any statutory benefits. They also have to negotiate their pay per project or based on the scope of work agreed upon.

Businesses that hire independent contractors must classify them correctly. The Labor Code Order 1992 defines employment relationships in Lesotho and outlines key differences between employees and contractors. Meanwhile, the Income Tax Act 1993 covers tax responsibilities, including withholding tax requirements for self-employed individuals. Familiarity with both is a must for compliance in Lesotho.

Difference Between Independent Contractors and Employees in Lesotho

We’ve briefly covered the differences between independent contractors and full-time employees. Let’s look at the intricacies of these professional relationships below.

Legal Classification

Employees in Lesotho are covered under the Labour Code Order 1992. It grants them protections such as job security, leave benefits, and employer contributions to social security.

Since independent contractors are not covered, they do not get these protections. Instead, the work agreements are civil contracts. The general contract law governs them, and they must negotiate their terms with the hiring party.

Benefits

Full-time employees receive a host of benefits in Lesotho, including paid leaves, social security contributions, overtime pay, severance pay, and so on. However, independent contractors are not entitled to these perks.

They have other advantages in their professional arrangement. These include greater flexibility in setting working hours, choosing projects to work on, and negotiating their rates. Business-related costs such as office space, software, or equipment can also be deducted from taxable income.

Employment Termination and Disputes

Employees have legal protections against unfair dismissal. Employers must follow the guidelines outlined in the Labor Code, including providing notice or severance pay when terminating an employee. If disputes arise, employees can seek resolution through the Labor Court or Directorate of Dispute Prevention and Resolution (DDPR).

Independent contractors rely on their contracts to outline termination terms. If a dispute occurs, it is generally handled through mediation or legal action under contract law.

Since there are fewer protections for independent contractors, they must be vigilant in protecting their rights. A big part of that is creating a well-defined contract. We’ll explain its significance in later sections.

Payment and Taxes

Employees receive a regular salary, which is subject to Pay-As-You-Earn (PAYE) tax. Employers have to deduct and remit these taxes to the Revenue Services Lesotho (RSL).

Independent contractors handle their own taxes and must file their income with the LRA. They are subject to withholding tax on certain services and may need to make advance tax payments depending on their earnings.

Work Flexibility

Employees follow schedules set by their employer and work under company policies. They cannot be made to work more than the government-set maximum working hours.

However, independent contractors control their own workload and set their own hours. They have more flexibility to choose how they complete their assignments as long as they meet agreed-upon deadlines.

How to Convert an Independent Contractor to an Employee in Lesotho

If your business decides to transition an independent contractor into a full-time employee, these steps will help streamline the process.

  • Decide if the contractor’s working relationship is more suitable as an employee. Look at their nature of work, duration of engagement, and level of control exercised by the business.
  • Draft an employment contract with salary, benefits, job roles, and leave entitlement details.
  • Register the employee with the revenue authority.
  • Adjust their payroll and benefits to reflect the new employment status.
  • Provide employee onboarding and training materials to help them adapt to their new role.

Why Hire an Independent Contractor in Lesotho?

Here are some reasons for hiring independent contractors in Lesotho, especially if you’re a business with fluctuating human resource needs and a smaller budget.

Lower Employment Costs

The average salary in Lesotho varies by industry, but full-time employees often come with additional costs such as pension contributions, paid leave, and severance payments.

Businesses hiring independent contractors do not have to cover these expenses. Contractors manage their own taxes and benefits, allowing businesses to save on overhead costs while still accessing skilled labor.

Simplified Administration

It’s comparatively simpler to handle independent contractors than regular employees. Businesses don’t have to worry about the administrative side of things, such as tax filings and benefits administration.

Contract termination is also less complicated, so businesses can quickly replace contractors who aren’t meeting their needs.

Flexible Workforce Scaling

Not every business can spend huge amounts on scaling its workforce. Independent contractors offer a cost-effective way to scale without too much HR work. You can scale your workforce up or down based on seasonal demands without worrying about permanent staff.

Labor Laws in Lesotho

The labor laws in Lesotho are not just limited to salaries and employee benefits. They also have other stipulations that we cover below.

Working Hours

Lesotho’s labor laws set a standard workweek of 45 hours, typically spread over five or six days. Employees working beyond these hours may be entitled to overtime pay. However, this perk may be subject to their contract’s terms and the industry.

Overtime compensation is usually 1.25 times the regular wage for extra hours worked on weekdays and 1.5 times for work on weekends or public holidays. However, independent contractors do not follow these rules. They can work whenever and however, they want as long as the client is satisfied with the work done.

Holidays and Leaves

Employees are entitled to 12 days of paid annual leave after completing a year of service. Lesotho also recognizes public holidays, during which employees may receive paid time off if it falls within their regular work schedule.

Maternity leave in Lesotho lasts for 12 weeks, with at least six weeks taken after childbirth. While there is no statutory paternity leave, some companies offer it as part of employment benefits.

Sick leave is also granted based on service length. Most employees typically receive one month of paid sick leave per year. In contrast, independent contractors get no such leaves.

Payment System

Salaried employees receive their wages through monthly bank transfers. Taxes are automatically deducted by the employer.

Independent contractors manage the administrative work of taxes themselves. So, they get paid in full without any deductions. They can choose to go the traditional route of bank transfers for payments or choose alternatives like direct cash payments or online payment platforms.

Benefits and Bonuses

Many full-time employees receive additional perks such as medical insurance, housing allowances, transport reimbursements, and pension contributions through employer-sponsored programs. They may also get end-of-year bonuses based on their performance.

As mentioned earlier, independent contractors do not get such bonuses. They have to cover their own insurance and retirement savings.

Tax and Compliance Practices in Lesotho for Independent Contractors

Lesotho doesn’t have a comprehensive social security system like larger and more developed countries. However, employers can still make certain contributions to their workers or provide them with private benefits. Income tax is a compulsory contribution for residents of Lesotho.

Income Tax

As they are self-employed, independent contractors pay their own taxes in Lesotho. Their income is subject to personal income tax, which follows a progressive structure:

  • 20% on annual income up to M 69,120
  • 30% on income exceeding M 69,120

Since employers do not withhold taxes, independent contractors have to do these calculations themselves. Tax remittance to the relevant authority is also their responsibility.

Withholding Tax

Lesotho also charges a withholding tax on contractors. For resident contractors, the rate is 5%, while non-resident contractors pay 10%. Non-resident contractors that offer technical services in Lesotho are taxed at 7.5%.

Social Security Contributions

Employers do not have to make any mandatory social security contributions in Lesotho for full-time employees or independent contractors. However, they can choose to offer worker injury benefits, especially for high-risk jobs.

Business Registration and Tax Requirements

Independent contractors may have to register their business with the Ministry of Trade and Industry to operate legally. They may need to obtain a trading license or register as a sole proprietor under Lesotho’s Business Licensing and Registration Act.

Plus, contractors earning more than M 850,000 annually must register for Value-Added Tax (VAT). VAT is charged at 15% on taxable goods and services. Contractors who qualify must submit VAT returns regularly to stay compliant.

How to Pay an Independent Contractor in Lesotho

You have three main options for paying independent contractors in Lesotho.

Bank Transfers

Lesotho’s major banks, such as Standard Lesotho Bank, Nedbank Lesotho, and First National Bank (FNB) Lesotho, facilitate domestic and international payments. Businesses can use SWIFT transfers through these banks for cross-border transactions.

Mobile Money Services

EcoCash Lesotho (by Vodacom) and M-Pesa Lesotho (by Econet) allow seamless transactions without a bank account.

Online Payment Platforms

Businesses may use digital payment platforms to pay independent contractors. Popular options like PayPal are readily available in the country.

Key Factors to Consider When Hiring an Independent Contractor in Lesotho

When you hire independent contractors in Lesotho, keep the following factors in mind.

Skill Vetting

First, you should review a contractor’s portfolio and work history to get a sense of their performance. You may also check their past projects or ask them to do a sample for you.

 

Contract Terms and Deliverables

A well-structured contract protects both parties. Clearly outline:

  • Scope of work and expected deliverables
  • Payment terms and invoicing process
  • Project deadlines
  • Confidentiality agreements if sensitive business information is involved

Contracts should comply with Lesotho’s contract law to avoid disputes and misunderstandings.

Proper Classification

The most important aspect of hiring independent contractors is proper classification. Businesses should avoid giving contractors fixed work hours, company benefits, or direct supervision, as these are characteristics of an employer-employee relationship. Allow them to manage their own schedules and work methods to maintain their independent status.

Top Independent Contractor Providers in Lesotho

The following independent contractor providers can connect you with the right talent in Lesotho.

Horizons

Horizon new homepage

Horizons is a global payroll and contractor management provider with services available in Lesotho. They assist businesses with contractor recruitment, payroll processing, and contract management.

Their platform streamlines the onboarding process, reducing administrative work. Horizons also supports work permit processing when hiring foreign contractors.

Deel

Oyster HR homepage

Deel offers a seamless way to hire, manage, and pay independent contractors in Lesotho. The platform automates contract generation and provides multiple payment options, allowing businesses to pay contractors in their preferred currency.

Deel’s compliance-focused approach reduces risks related to worker misclassification. So, businesses can rest assured they are working with independent contractors, not employees.

Velocity Global

Oyster HR homepage

Velocity Global’s AI-powered platform simplifies contractor management, from onboarding to payments. The provider also helps businesses stay compliant with local regulations so that independent contractors are properly classified.

Since Velocity Global is an employer of record (EOR), it can also handle HR functions. Businesses can then penetrate Lesotho’s market without establishing a local entity.

Rippling

Rippling homepage

Rippling is an all-in-one workforce management platform that handles payroll, benefits, compliance, and contractor payments. Businesses hiring independent contractors in Lesotho can use Rippling to automate payments, generate compliant contracts, and manage HR processes efficiently.

Rippling’s experts also assist in headcount planning and HRIs, which further take the administrative load off businesses. The platform’s integration with other business tools also makes contractor management a seamless process.

Scale Your Business With Independent Contractors in Lesotho

Lesotho’s young labor force and high mobile penetration mean that businesses can find suitable independent contractor talent in the country. However, it can often be tricky to find the right people for the job.

RemotePeople uses your requirements to find pre-vetted independent contractors in Lesotho that can help scale your business. Our comprehensive screening process means that you get high-quality talent without the hassle of recruitment and onboarding.

Reach out to start your search for top independent contractors in Lesotho.

Frequently Asked Questions

What should be included in an independent contractor agreement?

Contracts should outline project scope, payment terms, deliverables, timelines, confidentiality clauses, and termination conditions to protect both parties.

Where can businesses find independent contractors in Lesotho?

Companies can use platforms like RemotePeople, freelance marketplaces, independent contractor providers, or local networking events to connect with skilled independent contractors.

What happens if a business misclassifies a worker in Lesotho?

Misclassification can result in fines and back payments for employment benefits. The company’s reputation may also suffer in the country. On top of that, legal disputes can arise, which can be costly and time-consuming.