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Employee vs Contractor

September 11, 2020

There is no black and white answer when deciding if someone is an employee or contractor, just several shades of grey.  Given this it is all the more important that your intentions, actions and documentation support the relationship you wish to enter into with someone who will work for you.  In a dispute, the Employment Court applies complex legal tests to determine the ‘real nature of the relationship’, and their decision can have significant financial implications if you have incorrectly treated an employee as a contractor.

Employees generally work a specified number of hours each week, at prescribed times, for a standard hourly wage or salary (sometimes with overtime allowances). An employment contract (which is a contract of service) usually prevents an employee from for anyone else.  Most importantly, employees are protected by the Employment Relations Act, Minimum Wage Act and Holidays Act.

Contractors, meanwhile, are self-employed, are not entitled to sick leave or holidays and the Employment Relations Act does not apply to them. Contractors have significantly fewer rights in a dispute situation and can generally be dismissed for just about any reason.  In return for this added risk they have more flexibility and control over when and how they work and may be paid at a higher rate. Contractors will often own and bring their own tools and pay for their own training.  Under their contract for services an independent contractor can usually choose their hours, work for several businesses at once, and are able to hire (subcontract) someone else to work with, for, or instead of them.  Under most contracts they do not get paid until the work is completed to a specific set standard.

Making the wrong call could be costly to your business.  To assist you in deciding whether you and your workers are in an employment or contracting relationship or to provide you with clarity as you enter into a particular working relationship, please contact us.

Author: Kirsty Bullen

Managing Director

Campbell Tyson Limited

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