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When you’re not an “employee”: Differences between employees, contractors and volunteers

Independent contractors

What’s the difference between an employee and an independent contractor?

If your work relationship has all or most of the features listed below, you’re probably an employee:

  • you and the person you work for intended that you’d be an employee, as shown by any written agreement, contract, or letters or by how you and the other person behaved
  • the person you work for (or their agent) controls the hours you work
  • the person you work for (or their agent) has the power to hire and fire you
  • the person you work for makes the profit or loss
  • the person you work for deducts ACC premiums and PAYE tax on your behalf
  • the person you work for supplies the materials you use for your work
  • the person you work for owns or leases the equipment you use
  • you’re required to work only for that person at the time, and it’s expected you won’t compete with them or offer to work for their competitors.

If you are an employee you will be covered by all the protections in the Employment Relations Act and other employment Acts.

On the other hand, if your work relationship has most or all of the features listed below, you’re probably working as an independent contractor, and not an employee:

  • you and the person you work for didn’t intend to form an employment relationship, and this is reflected in your contract or in the behaviour of the two sides
  • you control how and when the job is done
  • you’re paid in a lump sum at the end of a job, or in instalments as progress is made on the job
  • you can choose who does the work, so that you can hire your own employees without getting approval from the person you’re working for
  • you pay any tax, ACC and insurance directly
  • you can make a profit or a loss directly
  • you supply the equipment and materials
  • you’re free to accept similar work from a number of sources at the same time.

What if it’s unclear whether someone is an employee or an independent contractor?

Employment Relations Act 2000, s 6

If this is unclear, the Employment Relations Authority can decide the issue (see the chapter “Resolving employment problems”).

The Authority will consider any evidence of what the two sides intended, and the other factors listed above, as well as any other factors the Authority thinks are relevant (see above, “What’s the difference between an employee and an independent contractor?”).

Although the Authority will take into account any statement from the two sides describing their relationship, it won’t treat these statements as decisive – instead it must decide on the basis of the real nature of the relationship.

Community organisations hiring independent contractors

Employment Relations Act 2000, ss 69N, 69O

In general, an independent (or “self-employed”) contractor is someone who’s in business on their own account. The legal term for the kind of contract an independent contractor works under is a “contract for services”, as opposed to an employee’s “contract of service”.

Independent contractors generally aren’t protected by the Employment Relations Act 2000 and other employment laws.

Liability for independent contractors

In general, organisations that hire independent contractors (including community organisations) aren’t legally responsible (“liable”) for the contractor’s wrongful behaviour or failures.

However, the organisation will be liable if the contractor had actual (or reasonably appeared to have) authority to act on the organisation’s behalf.

What obligations do organisations have to independent contractors?

In general, an organisation’s obligations towards you as an independent contractor will depend on the terms of your particular contract with them. Read through your contract.

Independent contractors are usually not protected by the Employment Relations Act or any other employment-related Acts. But there are exceptions – for example, the various protective Acts do cover homeworkers working as independent contractors under a “contract for services”

Here are some other Acts that protect both employees and contractors:

Whether you are an independent contractor or employee, the business, organisation or person you’re working for must honour your health and safety, human and privacy rights.

Contractors must not discriminate

Independent contractors can’t discriminate against customers on the basis of any of the illegal grounds of discrimination set out in the Human Rights Act (see the chapter “Discrimination”).

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