Contractor or employee?

Kirsten Hawke

Last year, New Zealand Post hit the headlines when some courier drivers argued they were employees, rather than contractors and this week Visionstream finds itself in the same pickle.

Contractor or employee?

Line workers are taking a class action against the Chorus subcontractor, seeking employee status, which gives them greater legal rights and potential financial compensation.

Throughout many industry sectors, including trades, media and real estate it is common for workers to operate as contractors but are all Kiwi companies playing by the rules?

Media publicity around cases such as Visionstream’s line workers indicates there are some issues around understanding of the laws – for both the contractors and the companies giving them work.

Law is a fickle area and for our clients we encourage them to do some homework, err on the side of caution and play fair.

The Employment New Zealand website has a good resource page to help you determine if someone working for you can have contractor or employee status.

Here are some key factors.

1.       Rights are different for employees vs contractors

Employees are entitled to minimum wages, leave and must have a written employment agreement.

The employer must keep good records of these employee details.

Contractors need to pay their own tax and ACC levies, and they are not covered by most employment-related laws.

 

When the Employment Relations Authority believes there is a sham contracting arrangement, used by an employer to avoid their responsibilities, the employer will be expected to pay the employee their entitlements. The employer can also be charged penalties.

 

2.       Intention test

The intention of both parties when entering a working arrangement is considered relevant.

The type of contract, employment or contract for services is important, and if there is no contract – this is dangerous territory.

Agreements about leave also influences the type of working arrangement.

 

3.       Control or independence

If the worker has control over their hours of work, the location and their availability they can appropriately consider contracting for services.

This is where workers for Visionstream and New Zealand Post argue that have set hours and must be available for those times. This restricts them from working for other companies.

It is reasonable to expect an employee would require supervision, whereas a contractor can work unsupervised to produce the desired outcome.

 

4.       Integration test

If the worker is an integral part of the on-going regular work, they are more likely to be deemed an employee.

Even being required to wear a company uniform can influence the integration test.

When a worker supplies their own tools, is paid by their results and is involved in a one-off project – they are more likely to be considered a contractor.

 

5.       Economic reality test

When a worker is set up as their own business, that is, they charge a fee for services, pay their own GST, tax and ACC, and importantly, they can profit from their work – they would appear to be a contractor.

If it works like a business, with multiple clients, employees and promotes itself to get more business – it is a business. This would indicate contracting is appropriate.

However, if a worker mainly works for one entity, doesn’t set its fees and doesn’t promote itself for more work – the worker could be deemed an employee.

Employing people is rewarding and can be tricky so if you have any queries, talk to your BUSINESS buddy.

The Ministry of Business, Innovation and Employment has a helpful employment information service form Monday to Thursday 8.30am - 5.00pm, Fridays 9.00am - 5.00pm.

Phone 0800 20 90 20 for their assistance.

Kirsten Hawke