There are regularly stories in the news about individuals or groups of individuals who have claimed to be employees when their “employers” say that they are not. These include the cases of the Gloriavale religious community in the South Island where former members of the community have claimed that they were employees but the leadership say they were volunteers. There have also been recent cases where courier drivers and taxi drivers said by their employers to be independent contractors have successfully claimed that they are, in fact, employees. Why does this matter?
It matters because employees have a range of rights and entitlements that independent contractors and volunteers do not.
The most important of those rights are usually:
- The right to annual leave (holidays) and to paid statutory holidays;
- The right to be paid the minimum wage;
- The right to not have deductions made from their pay unless strict criteria are met; and
- The right to raise a personal grievance for unjustified dismissal or unjustifiable disadvantage.
Employees are usually also entitled to a minimum period of notice and have slightly different rights and obligations (compared to volunteers and independent contractors) under the Health and Safety at Work Act 2015.
Getting it wrong can cost employers a large amount of money. For example, if a person is paid less than the minimum wage for each hour they work because they are an independent contractor and are then found by the Employment Relations Authority or Employment Court to be an employee they are likely to be entitled to:
- Have their pay topped up to the minimum wage (going back up to 6 years);
- To be paid for annual leave which will usually come to 8% of the total pay that they are entitled to;
- The right to be paid for statutory holidays that they worked;
- The right to claim that they have been unjustifiably dismissed (when their contract comes to an end).
Independent contractors are not entitled to any of these things. The difference between the rights of employees and those of independent contractors is so big that in 2010 the government changed the law so that in some cases film workers who would normally be treated by the law as employees are now treated by the law as independent contractors.
There are good reasons why some businesses engage some individuals as independent contractors rather than employees. There are also good reasons why some individuals prefer to be independent contractors rather than employees. But the cost of getting wrong can be significant so, if in doubt, we recommend seeking legal advice before deciding which option is right for you.