Independent contractor or employee — what’s the difference?

VARIOUS employmentrelated cases have been making headlines over the last few months and a recent news article has shone a light on the difficult working conditions many courier drivers face.

Courier drivers (many of whom are engaged as independent contractors) spoke of long days, no breaks or holidays, and financial penalties if they could not finish all their deliveries.

Independent contractors do not have the same rights and protections as employees, such as the right to the minimum wage, reasonable rest and meal breaks, and paid holidays.

In theory the tradeoff for independent contractors is greater control and flexibility over how and when they work, whom they work for, how much they charge for their services and how much they can earn.

In practice though, that is not always the case.

First Union has now announced it has begun proceedings in the Employment Court to determine if courier drivers are in fact ‘‘independent contractors’’, or if they are instead really employees.

Clearly, there is a great deal of water to go under that bridge yet, but the outcome of those proceedings could have significant implications for the organisations that engage courier drivers as independent contractors.

The implications could extend further — First Union has already indicated some truck drivers could be in the same boat.

Whether a worker is an employee or an independent contractor is not always clear or straightforward. There are wellestablished legal tests to help determine the true nature of the relationship:

Intention: What did the parties intend? That can often be worked out by referring to the written agreement. Intention is relevant but doesn’t determine the true nature of the relationship on its own.

Control: The more control a worker has over how and when they work and what work they do, the more likely they are to be an independent contractor. The more control exercised by an employer over the what, how and when, the more likely the worker is to be an employee.

Integration: How integrated into the business is the worker, and how fundamental are they to the operation of the business? The more integrated a worker, the more likely they are to be an employee.

Fundamental/economic reality test: Is the worker in business on their own account? A worker is more likely to be an independent contractor if they:

Charge a fee / invoice for their services.

Pay their own taxes and ACC levies.

Meet their own costs.

Take on a degree of financial risk.

Can get other workers to do the work they have agreed to do.

Provide services to multiple principals at the same time.

Advertise their services. Organisations engaging an independent contractor should be aware that, even though the parties might agree the relationship is one of principal and contractor, if the true nature of the relationship is actually an employment relationship, the organisation will have minimum employment obligations to the worker (and is likely to have arrears to pay as well). This can be very costly — for example, a company may find itself liable to pay several years of accrued holiday pay.

Relationships can also change over time. For example, someone who starts off as an independent contractor might, over a number of years, be integrated into the business and end up being no different from an employee.

Organisations should therefore regularly review their longterm relationships with independent contractors and consider if the way the worker is being engaged is still appropriate.