Employee or contractor? It pays to get it right at the start
Are you thinking of taking on more staff, and trying to decide whether you need an employee or contractor? Take care. The initial appeal of a contractor may not be right in the eyes of the law and getting this wrong can be costly to you and your business.
Employment New Zealand have useful guidance to help you get it right and save you time and money.
Employee vs contractor the differences
Hiring workers as either employees or contractors can be lawful providing that the correct type of working arrangement is used in each situation. Employees work for you, while contractors work for themselves.
Employment New Zealand have useful guidance to help you get it right and save you time and money. Go to employment.govt.nz (search keywords: Employment agreements) to find out more.
How to decide – the legal tests
You need to know whether your worker is an employee or a contractor because your responsibilities as a business will be very different.
To make the correct decision focus on the real nature of the working relationship, not what you want to call them. The courts have developed some legal tests to help you tell the difference, they are the:
How to decide – the legal tests
- Intention test (what the parties intended the relationship to be).
- Control vs independence test (the greater the control exercised over the worker the more likely they are an employee).
- Integration test (if the work performed by the worker is fundamental to the organisation they are more likely to be an employee).
- Fundamental/economic reality test (looking at the full circumstances of the work relationship to determine its economic reality).
Consequences of getting it wrong
If you hire someone as a contractor when they are actually an employee, you may be liable for many costs. These potentially include unpaid PAYE, minimum wages, holidays and leave entitlements, penalties from Inland Revenue and/or penalties from the Employment Relations Authority, and being banned from bringing in workers from overseas. Also, you may get negative publicity that could harm your customer goodwill, reputation and potentially the value of your business.
Most employment laws don’t cover contractors in the same way as employees. Unlike employees, contractors: don’t get minimum employment rights like annual holidays, sick leave and the minimum wage and much more, plus they can’t bring personal grievances.
However, health and safety laws apply to both employees and contractors. Go to employment.govt.nz (search keywords: Health and safety at work) to find out more.
For information about employment laws covering employees’ rights go to employment.govt.nz (search keywords: Minimum rights of employees ).
Employment New Zealand can help you get it right
In many simple cases, a business can decide what is the correct status for a worker. We have simplified the main legal tests into handy questions for you. For more information go to employment.govt.nz (search keywords: Contractor versus employee).
Employment New Zealand also have the employment law database so you can search cases from the Employment Relations Authority, go to employment.govt.nz (search keywords: Employment law database).
For comprehensive information on your employment rights and responsibilities, visit the Employment New Zealand website: employment.govt.nz