Contractor Vs. Employee
The line between contractor and employee can often be a fine one, with the outcome determined by various details of working conditions.
Being an independent contractor has its perks. Contractors generally have more flexibility over their work schedule and who they work for. They may also have the ability to deduct business expenses if they are paying their own taxes and ACC levies.
There are drawbacks though. Contractors are not entitled to the extra rights that employees have under the Employment Relations Act 2000, Minimum Wage Act 1983 and the Holidays Act 2003. These entitlements include paid holidays, sick leave and the ability to raise a personal grievance. It is significantly more difficult for an employer to terminate the relationship if you are an employee. A contractor may be expected to have their own health and safety policies, though a business hiring a contractor will still need to show that it provided safe working conditions if an accident occurs at work.
Despite your agreement stating that a worker is a contractor, the Employment Relations Authority can deem a worker an employee if your relationship has the nature of an employment relationship. This can be an expensive mistake to make for an employer if you try to end the working relationship in the wrong way.
For an employer this will mean they could be liable for extra costs including:
Several months lost wages until the employee finds a similar job
Holidays and leave entitlements
Unpaid PAYE tax and Inland Revenue interest and penalties, which can be a higher amount than the unpaid principal
Employment Relations Authority penalties, which are often tens of thousands of dollars
There has been a significant number of Employment Relations Authority decisions and Employment Court findings in this area. A recent Employment Court case found that a courier driver was an employee, despite the driver’s agreement stating he was an independent contractor. Factors that led to this decision included:
The driver had to work at the locations and times specified by the company
The driver was told which van to drive
The driver displayed the company logo
The company had to approve of the driver’s insurance company
The Court helpfully sets out some questions you can think about to clarify your classification:
Is the worker free to work for others at the same time?
Does the worker have to pay and maintain and supply the tools and equipment they use?
Is the worker paid according to task completion, rather than paid for the time worked?
Does the worker have the right to exercise detailed control over the way work is performed?
Does the worker bear any risk of loss or have any chance of making a profit from the job?
Can the worker employ other people to help them?
If your agreement says the relationship is that of an independent contractor but you answered no to most of these questions, then you need advice on the best course of action. If you would like to continue using an independent contractor model we can provide guidance on how to do that.
Please feel free to call one of our employment team to have a chat or for more information about contractors, employees, or any other employment issue.
