Employers in many industries have often tried to avoid the employment protections given to employees by treating them as independent contractors.  If you think you have an independent contractor but end up with an employee you will be liable to pay holiday pay on top of “wages” already paid and provide for sick leave, bereavement leave and also pay ACC levies on the “employee”.

The movie industry regularly engages contractors to work on movies but in one case the contractor took a case all the way to the Supreme Court which, despite the contract stating in writing that he was an independent contractor who had to invoice the company and claim expenses against his taxable income, decided he was an employee.*

The Supreme Court eventually determined the worker’s status after the matter had been through the Employment Relations Authority, the Employment Court and the Court of Appeal.  After taking everything into account, the Supreme Court decided that the work relationship was that of an employee.  Its reasoning was that the employer scheduled hours of work for the employee and what he should do in those hours.  His work was linked so closely to the business that activity he undertook for the company could not be seen to be in the nature of an independent contractor.  This was a very expensive legal process for the employer on top of the financial implications of the employee’s change of status.

A common distinction recognised by IRD is:

  • An employee is a person working for you where you control their work and they do not hire anyone else to do the job.
  • An independent contractor is someone who does certain work for you, but their work routine and timeframe are not controlled by you and they may hire others to do the job (subject to contractual restrictions).

For employees PAYE must be deducted and holiday pay entitlements apply.  Employees are also entitled to bring personal grievance claims but independent contractors must sue in contract in the courts.  It is important to distinguish between the two to avoid future complications or possible misunderstandings, not to mention any pay and tax liabilities that may belatedly arise with serious profit and cashflow consequences.

*The law in relation to film industry workers provides that they are independent contractors unless their contract states otherwise.