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.
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.
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.
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.
This test will look at what the relationship was planned to be, and what the contract or agreement looks like.
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:
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:
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 675 700.