To decide whether to offer an employment agreement or enter into a Contract for Services you must first decide if the person being engaged is either an employee or a contractor.
Generally speaking, an employee is part of the business and a contractor has their own business.
An employee would have an Employment Agreement and a Contactor would have a Contract for Services.
Here are some points from which to identify if an engaged person is an employee:
- Both parties agree that the relationship will be an employment relationship.
- The engaged person must personally do the work and not pay someone else to do the work.
- The engaged person is paid for their time, per item produced/activity completed or by commission.
- The employer provides the tools and equipment to complete the work or, if the engaged person provides these items, the employer pays an allowance or reimburses them for the purchase.
- The employer takes all the commercial risk and is liable for any cost of remedying any defect.
- The employer has the right to instruct or give direction to the engaged person about how the work is done.
- The employer specifies the hours worked.
- The engaged person is not independent of the business. They work in the business and are part of the business.
- The business is responsible for deducting PAYE and paying ACC levies in respect of the engaged person.
There can be some financial risks should the engaged person be an employee and not a contactor and yet paid as if they were a contractor. A business may have been paying a contractor following receipt of an invoice but, if deemed an employee by the Employment Authority, the employer may be ordered to pay holiday pay, at the least.
It is very important to be clear about what the working relationship is but, before this, it is very important to know what working relationship you need.
OurHR can help businesses and organisations put in place either an employment agreement for a Contract for Services tailored to the business.
So, employee or contractor…what do you have?