Check those contracts

By Lawrence Watt

'Self-employment' can be some firms' way of getting full service on pared-back terms.

Self-employed contractors can claim legitimate expenses.
Self-employed contractors can claim legitimate expenses.

The days of a lifetime job, where people slave away for one employer until they retire, are rare. Today, many people work as self-employed contractors, are employed on a series of fixed-term agreements or on a casual basis.

So long as you are busy, contracting can suit people who want the choice of working on a variety of projects or move from one project to another.

Self-employed contractors can claim legitimate expenses like a portion of vehicle and phone bills. On the other hand, they are responsible for paying their own accident compensation levies, do not receive holiday pay (worth 8 per cent of 12 months' income), miss out on employer KiwiSaver contributions (at least 2 per cent) and are not afforded employment protections such as the right to challenge a dismissal.

Employment lawyer Garry Pollak says it is generally easy to terminate contractors because they are not covered by the Employment Relations Act 2000 so there is no legal basis to challenge a termination of services. It is a matter of the terms of the contract between the parties.

But for many contractors their "self-employment" is a sham; the contract may even exclude them from working for someone else, they are required to wear company uniforms, are regularly told what to do and cannot be readily distinguished from employees. Pollak says it is common for some people to be employed on a series of fixed-term employment agreements and this may be unlawful unless there are genuine business reasons for doing so.

He is aware of many firms that employ a mix of contractors - such as courier and other transport businesses and employees, who perform similar if not precisely the same functions.

There are legitimate reasons for engaging temporary employees, such as undertaking a one-off project, replacing an absent employee on parental leave, coping with seasonal demand or an unexpected increased workload.

The Government has passed legislation to clarify this distinction between independent contractors and employees on several occasions. The most recent was in the film production industry with the law known as the "Hobbit Act" after alleged pressure from Warner Bros and the local film industry.

"The 'Hobbit Act' means that even if you work solely for one film production company as an animator on a series of productions for years on end, you are legally self-employed," Pollak says.

Real estate salespeople are also governed by legislation that deems them to be self-employed - despite generally being contractually obligated to just one firm.

In the building industry, it is recognised most are contractors or "subbies" rather than employees and generally provide their own tools.

The Ministry of Business, Innovation and Employment lists these criteria for self-employed contractors on its website:

File their own tax returns.

Invoice you for their work.

Pay for their own training and development.

Invest their own money in a work activity.

Provide their own equipment and vehicle for sales staff.

The Inland Revenue Department appears to take a harder line, saying using a toolkit and a ute are not sufficient to make you a contractor. It outlines its rules in a brochure whether or not you are self-employed (available online, called 336). "Overall, we look at who has control over what work is done, how it is done and when it is done. If the answer is 'the employer' then the worker is almost certainly an employee," it says.

The IRD says it is possible to be employed in one job (working in a shop) and self-employed in another (making and marketing your own T shirt designs).

To complicate things, many people are employed on fixed-term agreements. The employer pays holiday pay and other benefits, but the job is only for a fixed period. Such employees generally do not use their own laptops or toolkits - but there must still be a genuine reason they are temporary.

The Ministry of Business, Innovation and Employment says a fixed-term employment agreement must clearly state it is for a fixed term, the reasons for this and how or when the employment will end.

It is unlawful to employ someone on a short-term employment agreement to "try them out", although the law does allow a trial period of up to 90 days. In the latter, the employee has the right to challenge an early firing. In the former, there is no such right.

Correction

Last Friday in the Kenexa Best Workplaces feature in the Business Herald three organisations were omitted from their category's results table. ADInstruments was named a five-year league organisation and Inspire Group and Maven Consulting were placed tenth equal in the Small Business category. The Herald regrets the error.

- NZ Herald

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