Employee or Contractor?

In many industries the use of independent contractors instead of or as well as employees is common.

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 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 case an employer wanted the worker 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!

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, can they profit from running the business in the manner that they think best?

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.

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.

Alan Knowsley
Employment Lawyer
Wellington