The Copeland Ashcroft Law Team recently presented a seminar around the country on “Getting it right from the start giving “need-to-know” tips on fundamental employment documentation and processes.
Key take-away points are summarised below:
Employment or contractor?
Obligations to employees are very different to those owed to independent contractors, yet many businesses are not entirely clear on the differences between the two. Most notably, contractors are not subject to the Employment Relations Act 2000 (Act), Minimum Wage Act 1983 or the Holidays Act 2003.
In determining whether an individual is an employee or a contractor, the Employment Relations Authority or Court will always look to the “real nature” of the relationship, the test set out in the Act. In making this assessment the Authority and Court will consider:
- The control test: the greater the level of control exercised over the individual, (including in relation to the hours of work, start and finish times, when holidays can be taken etc) the more likely the person is to be an employee.
- The integration test: if the individual is integral to the business (rather than just an accessory to it), this points towards an employment relationship.
- The fundamental test: is the individual conducting business on their own account? Do they have a set fee for their work, pay their taxes directly and have the ability to work for multiple businesses? If so, this would indicate the individual is an independent contractor.
The risk of getting it wrong is that a business can be penalised for breaching minimum employment standards if an individual, who in reality is an employee, is treated as a contractor. In such cases the business could also be subjected to litigation if the individual raises a personal grievance for unjustified disadvantage or dismissal.
Entering into an employment relationship
When entering into an employment agreement, care should be taken to ensure that the correct company or entity is identified as the employer (otherwise there is a risk of personal liability).
Employers have a duty to bargain fairly with the existing or prospective employees. As best practice, we suggest providing an employee with the proposed agreement and a cover letter which sets out the key terms of the offer of employment, and which puts the employee on notice of important provisions such as a trial period. (This will also help ensure that a trial period is valid. You can find more information about trial periods here.) The letter should also encourage the employee to seek independent advice, request that they sign and return the agreement to indicate their acceptance of the offer within a reasonable timeframe to allow an opportunity to seek that advice, and invite the employee to discuss any queries they might have.
Knowing what type of employment relationship (fixed term, casual or permanent) suits your workplace and staff forms a crucial consideration when first engaging staff.
Using the right type of employment agreement is key to ensuring that expectations are managed from the outset of the employment relationship, and reduces the risk of misunderstandings or grievance claims. You can find more information about choosing the right agreement here.
If you have a question about whether to engage an individual as an employee or contractor, or require advice on employment agreements, our team can help.
Disclaimer: We remind you that while this article provides commentary on employment law and health and safety topics, it should not be used as a substitute for legal or professional advice for specific situations. Please seek legal advice from your lawyer for any questions specific to your workplace.