Are they an Employee, or an independent contractor?
By Eleanor Gregan
The above question is an important one, as the answer dictates your rights, obligations and duties towards your workers. If your worker is an employee, then their relationship with your business is governed by New Zealand employment law and their written employment agreement. However, if they are a contractor, then New Zealand employment laws do not apply to that relationship. If you get the relationship classification wrong, you may be exposing your business to significant liabilities.
Interestingly, our law states that any description of the relationship made by the parties is not determinative. This means that despite the fact that a worker may have an employment agreement with your business, does not necessarily mean that the worker is, in fact, an employee.
Determining contractor vs employee:
When determining whether or not a worker is an employee or a contractor, the law identifies that you need to think “about all relevant matters”. As this is a broad requirement, our employment team has outlined a few considerations to think about when determining whether your worker is an employee or a contractor:
- Look at how the relationship has operated in practice. For example, does the worker take annual leave, sick leave, provide you with medical certificates when they are unwell and away from work, etc?
- Does the worker effectively work on their own account and control their own work?
- What was the relationship intended to be?
- Industry practice.
- How is the worker treated for tax purposes?
- How is the worker paid? For example, does the worker submit an invoice, or do you pay them a wage or salary?
It is important to remember that health and safety laws apply to both employees and contractors. As an employer, you must ensure that the workers who are associated with your business are given the highest of protection against harm to their health and safety. As you will all be aware by now, this includes taking proactive steps to protect your people.
You also need to keep in mind that worker relationships may evolve over time. Just because your worker is a contractor today, doesn’t necessarily mean that the law wouldn’t view them as an employee down the track, if aspects of that relationship were to change. You need to monitor your relationships with your workers to ensure that you don’t expose your business to further liabilities. Some of these liabilities may include:
- Accrued leave entitlement;
- Unpaid PAYE tax;
- Penalty up to $20,000 for no employment agreement;
- And much more!
What to do: Our employment team regularly reviews worker relationships and classifications, and advises whether or not the business has a risk of exposure to liabilities.
If you require any assistance in determining whether the people in your business are employees or contractors, or your obligations as an employer, then please feel free to contact our employment team on 09 915 4380 or email Eleanor Gregan at firstname.lastname@example.org.