Contractor or employee?

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.

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?

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
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

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.