Are you an employee or a contractor?
In many industries the use of independent contractors instead of or as well as employees is common, for example as couriers, for pizza deliveries, or in real estate.
Employees have protections under the employment laws such as holiday and sick pay, minimum wages, personal grievance procedures, etc. Contractors do not have those protections and must enforce their contractual arrangements through the normal courts.
However, it is often not easy to tell whether a worker is an employee or a contractor. The Employment Relations Authority or Employment Court can decide that someone called an independent contractor is, in reality, an employee and therefore entitled to all of the protections given to employees.
In one extreme case an employer wanted the worker who had started out as an independent contractor to be an employee and offered an employment agreement, but the worker refused and insisted on being a contractor. When the relationship ended under the contract the ‘‘contractor’’ then claimed they were really an employee. The Employment Court held that they were an employee and they had been unjustifiably dismissed, so it pays to get the status right.
The main test of whether someone is an employee or contractor, is whether they are really in business for themselves. Do they provide their own equipment, do they hire their own staff, are they taking the financial risk of being in business, do they decide how and when to do the work, can they profit from running the business in the manner that they think best?
It is also important to see whether they can have other ‘‘customers’’. If a worker contracts with multiple customers then they are going to be a real contractor. If they work only for the one ‘‘customer’’ and really have little or no control over how or when they do the work they are likely to be an employee.
The person who mows your lawn once aweek is likely to be a contractor. They are free to do the work how they want and to have multiple other customers.
However, it would be possible to have a part time employee whose job was just to mow the lawn. They might also be employed by others so sometimes the distinction is not easy.
The appearance of being in business is not enough.
Just because the worker renders an invoice, pays their own tax and ACC levies and operates through a company is not enough to conclusively make them a contractor, but without those factors they are likely to be easily found to be an employee.
If in reality the worker should be an employee, it is unwise to try to classify them as contractors to avoid the responsibilities employers have to employees.
Getting it wrong means an employer will be up for personal grievances and unjustified dismissals, as well as penalties for not providing employment agreements, not paying minimum wages, not recording hours worked and holiday entitlements etc, so the downside can be horrendous and very expensive.
Column courtesy of RAINEY COLLINSLAWYERS phone 0800 733 484 www.raineycollins.co.nz
If you have a legal inquiry you would like discussed in this column please email Alan on email@example.com