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Differences Between an Employee and an Independent Contractor

 

The first things we ask when we are contacted by a new client about an employment issue is “are you an employee?” and “have you signed an employment agreement?”. Although these questions might seem to be simple ones, it is crucial to understand whether you are an Employee or an Independent Contractor in order to understand what obligations and protections are related to your specific role.

Am I an Employee?

As an employee, you will have entered into an employment agreement with your employer. Often informally called an ‘employment contract’. Your employment agreement provides the basis you’re your role with your employer. The employment will cover the basics such as:

  • Job description;
  • Salary;
  • Hours of work;
  • Place of work; and
  • Entitlements to leave – including annual, sick, bereavement and special leave.

 Your employment agreement also provides that your employer has certain obligations to follow, such as:

  • Treating you in a fair and reasonable way in all aspects of your employment relationship;
  • Not making you redundant without following a fair process;
  • Paying your wages, including specifying how and when; and
  • Paying your tax, and deducting your Kiwisaver and Student Loan payments as required.

The main protection afforded to you by an Employment Agreement is that you are covered by the Employment Relations Act 2000. This Act provides that you are able to raise a personal grievance with your employer if you do not believe you have been treated in a way that is fair and reasonable. You can ask that the Ministry of Business, Innovation and Employment (MBIE) look into issues like underpaid wages, and you can hold your Employer accountable if you believe that you have been disadvantaged in your employment, or if you have been dismissed from your employment unfairly.

Am I an Independent Contractor?

As an independent contractor, you will have a lot more say about how you perform your role, how much you charge and what hours you work. Chances are, if there’s nobody telling you what your working hours are, or paying you a regular wage – you are an independent contractor. Essentially, you are your own boss!

Key indicators that you are an independent contractor rather than an employee are:

  • You are not paid a regular wage, but are instead given payments when you meet certain criteria described in your contract for services. For example, you invoice for your work and are paid as you go;
  • You get to choose when you work for the person you have a Contract for Services with;
  • You pay your own tax, GST (if appropriate) and cover your own ACC payments;
  • You don’t get sick pay, holiday pay, public holiday entitlements or bereavement leave;
  • If you are registered for GST, you can also claim business expenses back from the IRD;
  • You supply everything you need to do the work;
  • You can sub-contract or hire someone else to do work for you which you have agreed to do for someone else (within reason as per the terms of your contract); and
  • You have to organise and pay for your own training.

As an independent contractor, there is no guarantee of permanent work, and contracts can be entered into on a ‘per job’ basis. As mentioned above, this is very different from an employee who has a permanent position within an organisation. You also have no remedy under the Employment Relations Act 2000 because you are not an employee of the person hiring you to do the job. This means you can’t raise a personal grievance against the person you have contracted with, though you could seek other remedies such as claiming in Court for a Breach of Contract.

It is important to recognise if you are an employee or an independent contractor. We have seen cases at Legal Beagle where companies will try and name their employees ‘contractors’ in order to dodge their responsibilities under the Employment Relations Act. If your boss is telling you when to work, what job to do and is paying you a regular wage – then you're probably an employee, regardless of your job title.

It’s important that regardless whether you are an employee or independent contractor, that you have a detailed Employment Agreement or Contract for Services outlining the rights and responsibilities of both parties.

Disclaimer: The information on this page is general information only and must not be relied on as legal advice. Legal Beagle is not a law firm or a substitute for a law firm. We are unable to provide any kind of advice, explanation, opinion, or recommendation about possible legal rights, remedies, defences, options, selection of legal documents or strategies. 

 

 

 

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Legal Beagle is not a law firm or a substitute for a law firm. We are unable to provide any kind of advice, explanation, opinion, or recommendation about possible legal rights, remedies, defences, options, selection of legal documents or strategies.
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