Employers can find it difficult to choose employees vs independent contractors.
The rights and responsibilities for employees and independent contractors tend to differ drastically. As an employer, it is important to know if your worker is an employee or independent contractor as the employment laws that apply to each group will be different.
Employees vs Independent Contractors
Employee
The definition of an employee is a worker covered by an employment agreement, which should outline the basic entitlements available to the employee. The employee will normally be advised in the agreement of their pay, holiday entitlements, arrangements for sick leave, among other aspects.
In defining an employee, it is also important to note that employers are required to maintain employee records; which need to be accurate and kept for a period of 6 years; whereas employers do not need to keep employment records for independent contractors.
Independent Contractor
Compared to an employee, an independent contractor is often self-employed and will be engaged specifically for reasons outlined in a contract. The contract, sometimes referred to as an independent contractor agreement, is different to an employment agreement and will therefore not outline the same information, such as leave entitlements and arrangements for holidays.
Regardless of the worker being an employee or an independent contractor, it is important to note that employers have health and safety obligations to both parties.
Testing If One Is An Employee Or Independent Contractor
To ensure the relationship between a manager and a worker is being managed correctly, there are some tests employers can run to clarify whether a worker is an employee or an independent contractor.
Intention Test
This test will look at what the relationship was planned to be, and what the contract or agreement looks like.
For example:
Does the contract or agreement provide for entitlements such as holiday pay and sick leave?
What was agreed to at the time the relationship began?
Control v Independence Test
An employee will often be closely managed, or receive clear directions from a supervisor or employer; whereas an independent contractor will be more autonomous. This type of test will look at how much direction the individual has over their day to day work.
Common examples might be:
If they have set hours, or control their own hours.
If they are supervised closely or are self-directed.
Integration Test
The more important, or integral, an individual is to the organisation the higher chance they have of being classed as an employee. An integration test prompts the employer to look at whether the individual is completing tasks as a one-off, which would likely be from a contractor, or if they are completing tasks crucial to the business on a regular timeframe.
Common examples can be:
Whether they are involved in organisational events.
Whether they wear company logo uniform.
Whether they are paid by either salary or wage, or by results.
Fundamental / Economic Reality Test
One of the clearer tests an employer can complete is to assess whether an individual runs their own business with their own account, or whether they are paid as an employee in a regular pay run with other employees.
Incorrectly classifying employees as independent contractors can lead to serious underpayments, or missing basic employment entitlements. Employers must be sure of the relationship, and set the expectations clear at the start of the work.
For advice, employers should call Employsure on 0800 568 012.
