28 Jun Contractor v Employee
Knowing the difference between an employee and a contractor is fundamental. If you get it wrong the implications can be very costly.
What you should know:
- The law is changing – watch this space for updates.
- Contractors can lodge a problem with the Employment Relations Authority for them to determine if they are a contractor or an employee. This is a gateway to knowing if they can raise a PG.
- If you wrongly engage with a contractor (instead of an employee) you will be liable for any holiday entitlements they have not received.
- Employees can make a claim on their lost wages going back 6 years.
- There are several tests to help you know the differences
So how do I tell them apart?
The best thing you can do is to run through a checklist to ensure you’ve rightly engaged with a contractor/ or conversely an employee.
The devil is in the detail – these following tests will help you determine who is an employee and who is a contractor within your workplace.
The intention test
- Has a contract for services been signed by both parties?
- Do both parties agree on the intention of the relationship?
- The contractor will not be paid holiday pay.
The fundamental test
- The contract will submit invoices.
- The contractor can set their own rate.
- The employer does not pay PAYE, ACC, or KiwiSaver.
- The contractor can profit from their work.
- The contractor should work for multiple clients.
The integration test
- The contractor is not integral to the day to day running of the business.
- The contractor provides and maintains their own tools and equipment.
- The contractor does not need to wear a company uniform.
The control test
- The contractor chooses their own days and hours they work. There may be times they are unavailable.
- The contractor has greater control over the work to be done.
- The contractor is usually a specialist in their field and works autonomously.