The Coromandel Workers Council has been set up with the belief that everyone should have access to information about their rights as workers. With that in mind we want to help both employees and employers form strong and sustainable relationships that benefit everyone.
One of the questions that we seem to be getting a lot is “Am I a contractor or am I an employee?”. It’s important to note that there are some major differences between a contractor and an employee. Those differences, determined by the nature of the working relationship, affect the rights and obligations of the business and the worker.
There are a number of legal test developed by the courts which can help you determine if you are a contractor or an employee:
The intention test is relevant but does not determine the nature of the working relationship on its own.
Employees MUST have an employment agreement in writing
Contractors have a contract for services with a business
Employees MUST be paid holiday pay, where as a contractor does not
Employees are entitled to time and a half pay and a day in lieu for working a public holiday
Contractors are not unless otherwise agreed
Control versus Independence:
The greater the control exercised over a workers work content the more likely it is that they are an employee.
Employees have little to no control over the work to be done
Contractors have more discretion over how much time is spent at work
Employees usually work have set hours
Contractors generally have more control over their own availability and generally do not require supervision
Is the work being performed integral to the employer’s business? Usually work carried out by a contractor is only an accessory to the business. A person is likely to be considered an employee if the work is typically done by employees, is continuous ( i.e. not a one-off project) and is for the benefit of the business.
Employees will have all tools and equipment provided
Employees must be paid at least minimum wage. A contractor can be paid whatever rate is agreed to.
Employees have all of their tax and ACC obligations paid for by the employer
Employees are entitled to a minimum of 3% of their gross earnings paid into their Kiwisaver by their employer
Contractors may offer their services to multiple principals at the same time
Contractors carry financial risk and may give guarantees to cover breaches of their obligations
Contractors usually issue invoices setting out their fees or charges in order to get paid. Employees usually receive a payslip.
You may be asking “Why do I need to know the difference?”
Employers: If you hire someone as a contractor when they are actually an employee, you may later be held liable for extra costs including, unpaid PAYE tax, unpaid minimum wage, holidays, leave and Kiwisaver entitlements. You may also be at risk of receiving penalties from IRD and or the ERA.
Employees: If you are hired as a contractor incorrectly rather than as an employee, then you may miss out on your minimum employment rights and your Kiwisaver employer subsidy, plus you may end up paying tax and ACC levies that you didn’t have to.
If you need help determining your work status get in touch.