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Independent Contractors

Published May 9, 2018 (last updated on June 13, 2024) | Adam Wyatt - Copywriter and Content Creator

In some industries, it makes sense to utilise independent contractors instead of permanent employees. However, the arrangement must be managed effectively.

What Is An Independent Contractor Agreement?

Sometimes referred to as an independent contractor, a contractor will be engaged by a principal (often the business owner) to complete certain tasks or perform services. This type of agreement is referred to as an independent contractor agreement. This agreement will outline payment, duties and other important factors, similar to what an employment agreement does for employees.

The payment of contractors is done through invoices, and contractors are responsible for paying their own tax and Accident Compensation Corporation (ACC) levies.

Contractor V Employee

Unlike an employee, an independent contractor is not covered by normal employment laws. Ultimately, this means they are not entitled to annual leave or sick leave, and they cannot claim a personal grievance. Again, contractors also pay their own taxes and other government levies, while an employer is required to make these payments on behalf of an employee.

Unlike employees, an employer is not required to maintain contractor records to the same extent as payroll and other data for employees. Contractors control the hours they work, how work is done, and use their own tools. A contractor is less likely to be integrated into the team, for example they might not be invited to company events, and they should not be required to wear company uniform.

Differences Between Independent Contractors And Employees

If there is intent to employ contractors, employers should follow the guidelines below to ensure the worker is a genuine contractor. It is important to remember that there may be many reasons an employer chooses to engage an individual as a contractor instead of an employee, however a willingness by both parties to engage in this agreement is not sufficient for the arrangement to be legal.

Intention Test

This test examines the intention of the relationship and is usually based heavily on how the contract or agreement is written. For example, it will examine whether there is an employment agreement, or whether there is holiday pay outlined.

Control V Independence Test

The level of control the individual has over their own work can be an indicator of the employment relationship. A contractor is able to choose more freely where they work, when they work or the tools used, while an employee will have more clearly controlled work arrangements.

Integration Test

A worker will more than likely be considered an employee if they are fundamental to the business on an ongoing basis. A contractor will typically complete tasks that are required as a one-off situation.

Fundamental/ Economic Reality Test

This is one of the more definitive tests which examines the total situation of the work relationship. The test will look ultimately at whether the individual is in business with their own account, or paid as an employee.

Independent Contractors And The Health And Safety At Work Act 2015

Under the Health and Safety at Work Act 2015 (the Act), independent contractors are treated the same as workers. This means they have the same obligations, and rights when it comes to workplace safety as other employees.

Contractors have an obligation to take reasonable care of their own health and safety in the workplace, and to ensure their actions do not place any other individual at risk, as well as complying with any reasonable instruction given by the principal.

The Act also outlines that employers who engage independent contractors, must ensure their health and safety, and the health and safety of those impacted by the tasks being completed by the contractor.

Small business owners engaging independent contractors should ensure that prior to any work being completed, the same work health and safety inductions that are undertaken for employees are completed for the contractors. This ensures all parties are aware of what is required from them, and that the safe practices are being practised across the  workplace.

For advice and support on how to manage independent contractors in the workplace, contact Peninsula on 0800 568 012.

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