Employment Status – Employee or Contractor?

Independent contractors do not have many of the rights enjoyed by employees.  For example, independent contractors are not entitled to annual leave or sick leave, they cannot bring a personal grievance or claim unjustified dismissal and they are responsible for their own tax.  For these reasons, many employers seek to engage workers as independent contractors.  However, when determining if a worker is an employee or an independent contractor, the agreement between the parties will not be conclusive.  The Employment Relations Act 2000 requires the Employment Relations Authority and the Employment Court to determine the question of whether the worker is an employee or a contractor by considering the ‘real nature of the relationship’. To do this the Authority and the Court use a range of tests including:

  • The control test:  This requires an examination of the control the employer exercises over the worker.   The greater the control, the more likely the worker is to be an employer;
  • The economic reality test:  This requires an analysis of whether the worker is in fact in business of his own account. Does he or her supply his or her own tools? Can he or she make (or lose) profit from sound management decisions?
  • The integration test.  Is the worker an integral part of the employer’s business?

In addition to the above tests, the Authority and the Court will also consider the intentions of the parties, the worker’s tax status and industry practice.

Employers considering engaging workers who are to perform services personally as independent contractors should seek advice.  If the relationship is in fact one of employment, the employer could be exposed to various claims including claims for unjustified dismissal and unpaid leave.   The following features may point towards employee status or contractor status:

Few of the above factors on their own will determine the status of the worker.  However, going through the checklist is a useful first step in deciding if the worker can or should be engaged as an employee or an independent contractor.  Where the worker is to provide services personally, we recommend taking advice before engaging him or her as an independent contractor. 

For more advice on the status of a worker, please contact us on:  (09) 214 5780.

Disclaimer:  The information in this Knowledge Centre is not intended to be and does not replace legal advice.  It is provided free of charge for information purposes only.  Reasonable effort has been made to ensure the information is correct and up to date.  However, no responsibility for its accuracy or for any consequences of relying on it is assumed by the author or Just Employment Limited.  You are strongly advised to obtain specific advice from a lawyer about your case or matter.