Difference between employee and self employed contractor

Employees and self-employed contractors have different rights The term "employee" does not include self-employed people who work for others under contracts to do particular jobs or services. These people are often referred to as contractors or independent contractors.

The law is different for self-employed contractors and this handbook does not have any information about the rights and obligations of self-employed contractors or the people who contract with them.

Decisions on whether someone is an employee or a self-employed contractor

Sometimes it is not clear whether a person is an employee or a self-employed contractor.

Where a person is engaged as a self-employed contractor but thinks that he or she is really an employee, then he or she can ask the Employment Court to decide what the real nature of the relationship is. If someone asks the Court to do that, then others in the same position may also agree to have their names included in the case.

The Court will not just look at how the parties have described the arrangement. It will look at a number of other factors as well. It will make a decision on the person's status on the basis of the real nature of the relationship. The decision will apply only to those people named in the Court case.

If someone is engaged as a self-employed contractor and is happy with that, then the Employment Court cannot consider the matter.

Indications of being an "employee"

If all or most of these features are present in a work relationship, it is likely to be an employment relationship between employer and employee:

  • the intention of the employer and employee is to form an employment relationship, and this is shown in any written agreement or correspondence and/or by the behaviour of the parties to it
  • the employer or their agent controls the hours worked
  • the employer or their agent has the power to hire and fire
  • the employer makes the profit or loss from the enterprise
  • the employer deducts ACC premiums and PAYE tax on behalf of the employee
  • the employer supplies materials for the work
  • the employer owns or leases the equipment needed
  • the employee is bound to one employer at a time and is expected not to compete or offer his or her skills to competitors of the employer.

Indications of being a "self-employed contractor"

If all or most of the following features are present in a work relationship, it is likely to be a contract for services involving a self-employed contractor:

  • the intention of the parties to the contract is not to form an employment relationship, and this is reflected in the contract and/or the behaviour of the parties
  • the contractor controls how and when the job is done
  • payment is made in a lump sum at the end of a job, or in instalments as progress is made on the job
  • the contractor can choose who does the job and can hire other people without approval from the other party
  • the contractor pays any tax, ACC and insurance directly
  • the contractor can make a profit or suffer a loss directly
  • the contractor supplies equipment and materials
  • the contractor is free to accept similar work from a number of sources at the same time.

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