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Policies, Procedures & SafeguardsAugust 20, 2020
Are you hiring more contractors in your business than ever before? Chances are, you’re among the many small businesses in New Zealand getting new workers on a consistent basis through the booming ‘Gig Economy’ – but it’s not without a price.
With this innovation in hiring, from the previous standard employee system to the now more abundant contingency workers, comes a host of concerns for whether your business is operating in line with the law.
The gig economy refers to the growing number of workers abandoning traditional 9 to 5 employment in favour of working independently on a task-by-task basis for various employers.
Workers are expressing an increasing demand for flexible and autonomous work, prompting many to explore opportunities to work on their own terms, engaging in freelancing or working as independent contractors. Others, unable to secure employment in the challenging labour market, have turned to this type of work out of necessity.
Freelancers are more likely to undertake work for different clients concurrently on an adhoc basis and are paid a fixed price for projects. Others, unable to secure employment in the challenging labour market, have turned to freelancing out of necessity.
For SMEs who have traditionally lacked the resources to recruit and retain the best talent, this increased access to on-demand workers is an attractive one. To capitalise on the benefits of the addition of freelancers into the workforce, companies will require new tools and approaches. However, issues may arise when there is less protection for these workers, and when the definition of who is a contractor and who is an employee becomes murky.
Leading companies must attract and retain the best talent as well as implement systems to manage them and address the challenges of a new workstream.
The business case for workplace flexibility has been well-established and companies should consider providing such arrangements to existing employees.
In Australia for example, the largest freelance category is web, mobile and software development (44%, followed by design and creative (14%), customer and admin support (13%), sales and marketing (10%) and writing (8%). Data revealed that 4.1 million Australians, or 32% of the workforce had freelanced between 2014-15. (Source: A labour market that works: Connecting talent with opportunity in the digital age, McKinsey & Company, June 2015, page 37)
Professionals are now having to rely more on background checks, continuous monitoring and other screening practices to ensure that the gig workforce that is booming in their business meets legality and safety standards.
A recent Gig Economy Survey, conducted by Sterling, a background and identity service, examined hiring trends, identity fraud, and social media, revealing how HR professionals can leverage background checks and various screening methods to improve recruitment confidence in contingency worker hiring. The study also revealed some interesting trends of sham contracting arrangements and the serious effect that this can have on businesses.
Various questions arise regarding how to manage and engage temporary labour effectively:
A sham contracting arrangement occurs where an employer attempts to disguise an employment relationship as an independent contractor arrangement. The most common reason for doing this is to avoid paying employee entitlements.
Sham contracts can actually be unintentional, with the employer misunderstanding the arrangement and generally not understanding the policies and laws behind hiring. It can also be an intentional action, with the employer avoiding paying minimum entitlements such as KiwiSaver holiday and leave, and having to follow a fair and reasonable process prior to termination.
It’s very possible for a company to accidentally find themselves in a sham contracting arrangement. A contractor that has been engaged consistently to deliver services could actually be defined as an employee in a legal sense. This means that for companies who hire contractors on a regular basis, it’s essential to have confidence in where you actually stand and how you are faring against legal standards.
An employee is a person who is performing work for hire or reward e.g. wages/salary. This is generally called a ‘contract of service.’ An independent contractor, in contrast, is usually engaged for a specific project or task for a set fee.
The responsibilities and rights of these two forms of workers are very different by law. If you’re hiring a contractor, as a business it is your responsibility to know the difference and to be sure that you are employing your workers in line with how they legally need to be characterised.
Distinguishing factors for employees versus individual contractors:
You need to have a clear understanding of the following functions and agreements of your working relationship to determine whether a person you are engaging in work with is an employee or an independent contractor.
The following factors need to be considered:
Ultimately, the difference between a contractor and an employee is not clear cut. If you’re incorrectly representing to your worker the relationship between your company and that worker, you could be vulnerable to being in trouble for a sham contracting arrangement.