Contractor Relationships in New Zealand
Overview of contract for services (independent contractors) vs employees in NZ
Contents
Determining whether the worker is an employee or contractor
Overview - Contractor Relationships
Contractor relationships are required to abide by the Health and Safety at Work Act 2015, but are otherwise not covered by employment law (if they are truly a contractor relationship), and are governed by general civil law.
Learn more about type of employment (permanent vs fixed term vs casual) in our knowledgebase article here.
Independent Contractors
Independent contractors are engaged under a contract for service to perform services to the company.
There are currently four legal tests applied to help determine whether a relationship is truly that of a contractor. No one thing, will make the relationship a contractor, or one of employment, but it’s looking at it as a whole.
Intention
What the relationship intended to be, this is often taken from the agreement that is in place.
Control vs independence Test
The greater the control the company has over the worker they are more likely to be an employee. The opposite is true of a contractor. This takes into account, when they work, where they work, what they work on, how they work, level of supervision required.
Integration Test
Is the work required by the worker fundamental to the business, if yes, normally aligned with an employment relationship.
This looks at the type of work the employee does – is it work that is normally done by employees, is it continuous, is it of benefit to the business, how integrated the employee is in the business itself (uniform, social events, and organisation updates).
Fundamental / Economic Reality Test
What is the economic reality of the relationship – who pays the worker’s taxes, how does the worker receive payment, does the worker mainly work for one entity, advertise for work, carry financial risk etc.
More information and detail about these tests can be found from the Employment New Zealand website.
Determining whether the worker is an employee or contractor
- Will the worker have the choice of when, how and where they do the work required?
- Is the work you require to be completed, normally completed by a contractor?
- Will the worker provide their own tools and cover their own business expenses?
- The worker can wear what they want?
- The worker is not supervised or has very little supervision.
- The worker does not attend social events or team / company updates.
- The worker can have others do the work for them.
- The worker provides an invoice for the work they do.
If the answers to the questions are mostly yes, then sounds like it’s a genuine contractor relationship.
Keep in mind, any requirements that restrict the worker greatly, then it may be best to capture the relationship under an employment agreement. To run through a more in depth checklist - check out the employment New Zealand website.
Support Options
If you would like to discuss anything in this article further, please call MyHR on 0800 69 47 69 or email help@myhr.works.