What is a contractor?

A contractor is a self-employed person that enters into an agreement with another party (or client), under which the contractor will perform services in exchange for an agreed fee (often called a contract for service). 

Typically contractors will invoice the party who they are performing the services for, after an agreed task has been completed. 

What is an employee?

An employee is usually employed under a contract of service under the Employment Relations Act.  

Typically employees are paid daily or hourly wages, or a salary at set intervals. 

What are the key differences between contractors and employees?

Some of the things which may help to determine whether a person is a contractor or an employee include the following:

  • Contractors have more control over the way the work is completed, when the work is completed and how the work is completed;
  • Contractors are not integrated into or associated with their client’s business;
  • Contractors have to supply and maintain their own tools, equipment and materials;
  • Contractors are typically experts in their designated area, so they are not supervised or instructed in the same way as employees might be;
  • Contractors can work for more than one client at a time (unless they have agreed not to do so in their contract);
  • Contractors have the ability to subcontract their work (unless they agree in their contract not to do so);
  • The work that a contractor completes is not usually essential to the business in the same sense as the work of employees;
  • Contractors cannot be terminated, although a contract can be cancelled (if there are grounds to do so);
  • Contractors are in business on their own account and will usually pay their own tax; and
  • Contractors bear the risk of losses but also have the potential to make a profit.

Generally, if you have more control and independence over your work, are less integrated within the business you are working for and you are in business on your own account, you are likely to be a contractor rather than an employee.

What obligations do contractors have?

The obligations that contractors have to their clients depend upon the terms within the particular contract for services. Therefore, contracts for services must be robust and well understood.

Additionally, the Health and Safety at Work Act, the Human Rights Act and the Privacy Act apply to contractors.

Contractors also have to meet their own tax and ACC obligations and pay these directly.

Contractors should also ensure that they have insurance to cover their liabilities as they will not necessarily be covered by the insurance of their clients.

What rights do contractors have?

Because contractors are not employees, they are not covered by employment law.  This means they do not receive the same employment rights that employees are entitled to (for instance holiday leave, sick leave, bereavement leave or time and a half if they work on a public holiday). Additionally, contractors cannot bring personal grievance claims against those that hire them.

Contractors should include terms within their contracts for service and should plan their business and fees in order to account for the rights they would otherwise not receive as contractors. Terms contractors may want to include in their contract for services include:

  • restraints of trade;
  • protections over intellectual property rights; and
  • confidentiality clauses.

How can contractors resolve disputes?

Because a contractor is not an employee, the Employment Relations Authority and Employment Mediation Services are not available to assist with disputes, unless the dispute is about whether a person is an employee or contractor.

If a contractor is suffering from discrimination or harassment, then they can apply to the Human Rights Authority.

If a contractor is involved in a dispute or is owed a debt, they may be able apply for a decision in the Disputes Tribunal or the Courts, depending on the nature of the issue and the amount of the debt.

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