The employee vs contractor debate has been a hot topic for years, and that does not look set to change in the near future.
The Government has repeatedly shown an interest in the employee vs contractor status area, with a particular focus on industries where contractors could be subject to poor pay and conditions. In 2019, MBIE issued a discussion document outlining a range of options to address areas of concern. In 2021, the Government established a working group to recommend policy changes to improve outcomes for workers misclassified as contractors, and to look at protections for workers within the employee/contractor “grey area”.
In December 2022, the working group released a report setting out eight recommendations, focused on clarifying the boundaries between employees and contractors. You can read the working group’s full report here: Better protections for vulnerable contractors | Ministry of Business, Innovation & Employment (mbie.govt.nz). In short, it looked like momentum was growing to introduce a number of mechanisms to limit status issues moving forward.
However, on 13 March 2023, Prime Minister Chris Hipkins announced that the Government would defer public consultation on the recommendations for the foreseeable future. Why? We understand the delay is partly due to the notable Uber and Gloriavale cases (in which specific workers were held to be employees, not contractors or volunteers). Currently, we await the result of the appeal lodged by Uber against the Employment Court’s ruling that four Uber drivers were in reality employees, not independent contractors. We anticipate the Government also awaits this decision – and of course, it is election year.
Employee vs Contractor
For now, the current legal tests that differentiate between an employee/employer and contractor/principal relationship remain as they are, and largely informed by case law to date. In summary, the tests are as follows:
- The intention of the parties;
- The control exerted over the worker (for example, control over setting days and hours of work, availability of services and supervision of work);
- The worker’s integration into the business;
- Whether the worker genuinely operates a business on their own account.
Why does this matter? The consequences of a contractor being deemed to be an employee are far-reaching and include access to pursue claims for unpaid holiday and leave entitlements and breaches of minimum wage (if applicable), along with other remedies. The employing entity can also be held liable for unpaid PAYE tax, levies and even subject to penalties from IRD or the Authority. These claims can be time consuming and expensive – particularly when there is also a risk the floodgates open to further claims from other staff in the event a worker successfully claims to be an employee.
In our view, new legislation and/or amendments that actually assist in identifying which status a worker should hold would be helpful for many of our clients. Of course, it remains to be seen if we will get that, and if so, whether it achieves its aims in practice. For now, as has been the case for a number of years, watch this space and take advice if status issues are relevant to you/your organisation.
For more information
If you or your organisation needs advice, please do not hesitate to reach out. For more information, please contact 04 472 0020.
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