Contractor or Employee - has the relationship changed?

A recent Employment Court decision found that a ‘contract’ builder was in fact an employee. This was after an earlier cases where a self employer courier driver and a group of taxi drivers were also found to be employees.

This decision is not to say that all ‘builders’ will be employees but instead serves as a reminder to check the true nature of agreements and whether they could meet the tests.

When the nature of a relationship is challenged in a legal setting the focus is around ‘how’ the relationship operated in practice rather than ‘what’ the contract arrangements might say.

The test areas that questions are generally explored are:

  • How much control does the worker have?
  • How much independence does the worker have?
  • How integrated into the business is the worker?
  • What was intended (not what was in the agreement!)
  • Is the worker in business on his or her own account?

The issues in the case of the builder were that;

  • There was no differentiation from any of the employees on site;
  • The company provided tools, set the hours and work to be carried out and required the contractor to personally do the work
  • The Contractor was paid weekly with tax deducted and did not have any commercial risk

Where an contractor is deemed in fact to be an employee there will be an issue of outstanding entitlements. In the case of Southern Taxi’s the former Directors were held personally liable for $100,000 in minimum wages and holiday pay owed despite the company having changed hands.

If you have Contractors we would recommend periodic reviews to assess whether the nature of the relationship has changed. If there are changes from what was intended consideration should then be given to creating an employed role and talking with the Contractor as to whether that would be of interest to them.

For more information about the tests or help with reviewing contracting arrangements contact a member of the Grow HR team.