Employee Vs Contractor: What Did The High Court Say?

If you have someone working for your business, it’s important to know whether they are an employee or contractor so that you can determine some of the following things:

• How much do I need to pay them?
• What are their leave entitlements?
• Do I need to contribute to their KiwiSaver?
• How would their taxes work?
• Do I need to pay them minimum wage?
• Do the Employment Relations Act 2000 and Minimum Wage Act 1983 apply to them?

This is a popular question that arises in Employment Law because if you don’t classify your workers correctly, you could be breaching your employer obligations. Fortunately, New Zealand law provides clear guidance in this area.

In New Zealand, the distinction between an employee and a contractor is primarily governed by the Employment Relations Act 2000. The Act defines an employee as any person who has agreed to be employed, to work for some form of payment under a contract of service, while a contractor is engaged under a contract for services.

What Is The Difference Between An Employee And A Contractor?

While their roles and responsibilities might appear incredibly similar, there are key differences between employees and contractors which can help you classify them. This way, you can ensure you meet your obligations to them.

Employees work directly for your business and their duties and responsibilities are dictated by the employer depending on the Employment Contract they signed. An independent contractor, on the other hand, is self-employed. This means they may have their own IRD number, charge the amount they wish and can either accept or refuse to do certain tasks.

Put simply, the key difference here is that a contractor has greater autonomy over their work than an employee does, but this also means they need to be responsible for their own equipment, tools, taxes and insurance.

It also means that employees have greater protections. For example, they are protected by Work Health and Safety laws, as well as ACC WorkPlace Cover and the Employment Relations Act 2000.

How Do You Determine Whether Someone Is An Employee Or Contractor?

The answer to this question is one that changes with time, and requires a closer look at case law and statutory definitions.

Generally speaking, to determine whether someone is an employee or a contractor in New Zealand, you’d look at some of the following things:

• How you pay them
• Control over their work
• Nature of their work arrangement
• Their leave entitlements
• Whether you provide their equipment, or if they purchase their own
• Whether they have the freedom to do work for other clients
• Whether you need to contribute to their KiwiSaver and taxes

However, it isn’t always this simple. The Employment Relations Authority and the courts in New Zealand will consider the real nature of the relationship, rather than just what is written in the contract. This is to determine whether a person is an employee or a contractor.

So, what do New Zealand cases have to say about employees vs contractors?

Autumn Berryman Case

In the case of Autumn Berryman v Three Foot Seven Limited, the Employment Court of New Zealand considered the employment status of a worker on the film set of "The Hobbit". Despite a written agreement stating she was a contractor, the court looked at the real nature of the relationship and found that she was an employee.

The court considered factors such as control over work, integration into the business, and the intention of the parties. This case highlights the importance of the substance of the relationship over the form of the contract.

What Is The Key Takeaway Here?

The main takeaway from New Zealand case law is that in deciding whether someone is an employee or a contractor, the courts will look at the real nature of the working relationship, rather than just the specific terms of the contract.

So, even if your working arrangement seems to reflect a contractor relationship, the courts may still find an employment relationship if the actual working conditions suggest so. It's not just about what's written, but also about the reality of the situation.

Need Help?

These considerations are particularly important for businesses who engage workers in New Zealand, as the distinction between employees and contractors affects your obligations as an employer.

It’s crucial to keep up to date with these legal interpretations so that you know your legal standing for certain disputes or issues. If you need help figuring out someone’s employment status or general help within the area of Employment Law, don’t hesitate to chat to one of our expert lawyers.

If you would like a consultation on your options going forward, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.