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Contractor Or Employee

Who Am I?

Most workers in New Zealand are employees and not contractors. However, this is not always the case. The most common scenarios we come across are (in descending order):

  • The employee who believes he is an employee
  • The contractor who believes she is a contractor
  • The contractor who believes that he is a contractor but, in reality, is actually an employee
  • The contractor who now wants to be an employee

So what is what you may ask? The starting point is Section 6 of the Employment Relations Act. In essence, the courts must determine the real nature of the relationship by considering all relevant matters and by not treating any statements by the persons (i.e. what is said in the agreement) as determinative.

Through case law, and in particular one specific case known as Bryson and Three Foot Six Ltd, tests have been developed to help determine the real nature of the relationship. The starting point is what is stated in the documentation or the agreement between the parties. From here the following need to be considered:

Intention of the Parties

The intention of the parties at the time of entering into the agreement.  What was this intention at the time and the reasons for doing so.  Was there certain benefits of these intentions that are now wanting to be overlooked due to subsequent events?

The Control Test

This looks at the degree of control the boss has over the worker. The more control the boss has, the more this tends to indicate that the relationship is employment. The less control the boss has, the more this tends to indicate the relationship is that of an independent contractor. Take, for example, a boss gives a worker a list of 10 properties to install Sky satellite dishes in for the week. Its up to the worker in which order he does them and how he installs each one. Sounds like a contractor to me. In contrast to this, a pool technician is given a schedule of times, addresses and a list of the work that has to be done on each customers' pool. I would say there is a fair amount of control here so, it is more likely be employment.

The Integration Test

This test looks at how integrated the worker is in the business. Highly integrated tends to suggest employment and low integration is more likely a contractor. Take, for example, a warehouse operating as a bulk store. The fork lift driver is needed for loading and unloading pallet racks with goods on that the company is paid to store. The driving of that machine is an integral part of the business. However, the man repairing the broken forklifts is not an integral part of the business as the business is not a forklift repair shop. This task is an accessory to the business.

The Fundamental Test

This examines if the contracted person is self-employed or if they are working for someone else. There are various sub tests that help determine this. Generally a self-employed person is in business taking risks to make profits, whereas a person working for someone else is generally only remunerated per hour. If the contractor does not have the ability to sub contract the work out to a third party, and effectively clip the ticket, then the chances are that they are working for someone else.

Industry Practice

Or, in other words, what is common for your industry? For example, paper delivery boys (and girls and adults too) are mostly independent contractors. That is how the newspaper people get away with paying them peanuts for the amount of work they do.

If you are unsure, contact us to complete a review and written opinion for you.

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