After 11 months as a Truck Driver for LongChill Ltd in the Manawatū, Mr Hardaker resigned from his job. There were no issues and no personal grievances raised, and ordinarily that would be the end of the story.
Workers in the construction industry are frequently engaged as independent contractors. As are courier drivers, workers in transport, cleaning, security and other services.
This may be common industry practice but that doesn’t make it correct in the eyes of the Employment Court. Hard on the heels of the courier driver case last year, the Employment Court considered the issue again in Barry v C I Builders Limited. The Employment Court held that the real nature of Mr Barry’s relationship with C I Builders (CIB) was one of employment, despite the contractual agreement stating otherwise.
The assertion or even intention that a worker is a contractor cannot always be taken at face value. The Court will look at the “real nature of the relationship” and the way in which a relationship operates in practice to determine the status of the parties, rather than the “convenient application of a name tag”.
So, what are the typical signs of a builder who is a contractor?
- They set their own prices.
- Work for a variety of clients at different sites.
- Provide all their own tools and/or plant for the job.
- Set their own hours.
- Can have other workers do their work i.e. subcontract.
- Carry financial risk and gain. For example, they may not profit from a job if their costs exceed budget. They may also give guarantees to cover breaches of their responsibilities. They may carry their own insurance to help protect against these risks.
In Mr Barry’s case:
- He was treated the same as other employees on site.
- The company provided the majority of tools used by Mr Barry on site.
- The company directed Mr Barry’s work and retained control over the way in which he performed his work.
- Mr Barry worked 40 hours per week for CIB meaning he could not realistically work for others at the same time.
- He could not have other workers do his work.
- While Mr Barry provided invoices for payment, these were weekly invoices instead of on a job completion basis. The company deducted tax each week from Mr Barry’s pay.
- Mr Barry did not bear any commercial risk. Conversely, he did not have the ability to make a profit for completing his work more efficiently, or the ability to accrue business goodwill.
If you engage someone as a contractor when they are actually an employee, you may later be held liable for extra costs including:
- unpaid PAYE tax
- unpaid minimum wages
- holidays and leave entitlements.
You may also be at risk of receiving penalties from Inland Revenue and/or the Employment Relations Authority or the Employment Court. The Court will impose penalties where a business has attempted to use a contractor relationship to avoid minimum employment standards (such as holiday leave or sick leave) or other employment benefits or protections such as the right to raise a personal grievance
Some employers inadvertently classify employees as contractors not realising the consequences of their mistake. Often a contractor relationship can change over time. We recommend businesses engaging contractors monitor how the relationship operates over time.
Our consultants can help you determine the real nature of your contractor relationships. Please get in touch if you have any questions.