Independent Contractor or Employee?
Deciding whether an individual who carries out a task for money does so as an employee or in some other capacity is fundamental to the application of employment law. In an employment relationship, an individual agrees to provide his or her service to another in exchange for a wage usually exclusively. An independent contractor works under a contract for services often to multiple parties..
A lot hinges on whether someone is an employee or contractor. Employees are covered by the Employment Relations Act 2000 (ERA), have minimum legislative entitlements such as annual leave, public holidays, sick leave, and bereavement leave (as provided by the Holidays Act 2003), cannot be lawfully dismissed unless there is substantive justification and a fair process is followed and fulfil their tax and ACC obligations through their employers (eg. through PAYE).
Independent contractors are not covered by the ERA or the Holidays Act 2003, can (generally) be terminated by giving them notice, are responsible for their own ACC and tax payments; and may need to be GST registered.
In determining whether or not a person is an employee or contractor, the Employment Relations Authority must determine the “real nature” of the relationship between the parties, and will consider all relevant matters/factors, including the intention of the persons involved. However, just because the parties have expressed in the written documentation that it is an employment relationship, does not make it so; it is simply one of the factors to take into consideration.
An individual is very likely to be an employee in the following circumstances:-
- Where the work performed by the individual is an integral part of the business and the individual has become part and parcel of the organisation and is represented to the outside world as being an employee;
- The individual is not required to provide their own equipment needed to do the required job, have no control over the person’s work and the manner in which it is to be done, works under close supervision and does not have an opportunity to profit from his or her own endeavours in performing the services that have been engaged to.
Often at times, employers amend an existing employment agreement by changing the title and removing clauses referring to employee statutory entitlements and call it an independent contractor agreement. This is where legal advice becomes important. An experienced employment lawyer would be able to advise on how the relationship an employer intents to create will be viewed in light of the two legal tests outlined above.
Holland Beckett Lawyers has an experienced group of employment lawyers who are able to assist employers in relation to all employment matters. If you require any assistance please contact a lawyer in the Employment Team at Holland Beckett.
The information contained in this article is general information only, and does not constitute specific legal or other professional advice and should not be relied on as such. Readers should obtain specific advice before making any decisions or taking any action based upon information contained in this document.