Employees vs independent contractors and increased sick leave entitlements

Do you know the difference between an employee and a contractor? Did you know that sick leave entitlements are increasing? Two different topics but both as equally important, we explain further below. Employee vs independent contractor We have previously written about the legal test for whether someone is an employee or an independent contractor. This is set out in section 6 of the Employment Relations Act 2000 and focuses on “the real nature of the relationship” between the parties. While the mutual intention of the parties and the way in which the parties have labelled the relationship will be relevant considerations, the legal test is much broader in that it considers how the relationship operates in practice. In a recent Employment Court decision, a so-called independent contractor builder was held to be an employee when “the real nature of the relationship” test was applied. The Judge set out the following indicia in an Appendix to the written decision and referred to this as a useful tool for analysing the facts in the case concerned. The ticks on the table columns show which category is indicated when the indicia questions are answered “yes”. Any judicial decision on the real nature test requires an in-depth analysis of all of the legal tests and a careful weighing of the facts of the case at issue – i.e. it is not just a counting of ticks process. This case demonstrates that you cannot simply rely on a verbal or written agreement that someone is an independent contractor if, in practice, you operate more like an employer and employee in your day-to-day relationship.

INDICIA

Does the hirer have the right to exercise detailed control over the way work is performed, so far as there is scope for such control?

Is the worker integrated into the hirer’s organisation?

Is the worker required to wear a uniform and/or display material that associates them with the hirer’s business?

Must the worker supply and maintain any tools or equipment?

Is the worker paid according to task completion, rather than receiving wages based on time worked? Does the worker bear any risk of loss, or conversely have any chance of making a profit from the job?

Is the worker free to work for others at the same time?

Can the worker subcontract the work or delegate performance to others?

Is taxation deducted by the hirer from the worker’s pay?

Does any business goodwill accrue to the hirer?

Does the worker receive paid holidays or sick leave?

Does the agreement describe the worker as an independent contractor?

EMPLOYEE

3 3 3

3 3 3

INDEPENDENT CONTRACTOR

3 3 3 3 3

3

Cases like this usually come about because the so-called independent contractor has become aggrieved for some reason and wants to be able to pursue employment type remedies such as a personal grievance for unjustified dismissal,

and/or a claim for unpaid leave entitlements under the Holidays Act 2003 or unpaid KiwiSaver. In order to pursue such claims the so-called independent contractor has to first succeed in a claim that they were an employee and not a contractor. For more information on contractors and employees visit https://www.employment.govt.nz/ starting-employment/who-is-an-employee/

Increased sick leave entitlements

During the week commencing 17 May 2021 the Holidays (Increasing Sick Leave) Amendment Act passed its third reading in Parliament and on 24 May 2021, it was given the Royal Assent by the GovernorGeneral. The amendment came into force two months after the Royal Assent, so on 24 July 2021.

The Amendment Act amends the Holidays Act 2003 in relation to the entitlement to paid sick leave. The changes are very simple and are as follows:

• Section 65 of the Holidays Act 2003 is amended so that the entitlement to paid sick leave is 10 days for every 12-month period, rather than 5 days per annum (after the employee has met the initial 6 months of employment threshold requirement – which does not change); and • Section 66 of the Holidays Act 2003 is amended so that an employee can carry forward up to 10 days paid sick leave to the next entitlement year (instead of 15), but the maximum that can be accumulated remains at 20 days. Many of you will have employment agreements which specify 5 days paid sick leave. You cannot contract out of the Holidays Act 2003. Even if your employment agreement states 5 days, you will have to comply with the changes. As a first step, we recommend that you communicate to all of your employees that even though their employment agreements state 5 days sick leave, you will of course be complying with the increase to 10 days on their next sick leave anniversary date.

For more information on sick leave visit www.employment. govt.nz/leave-and-holidays/sick-leave/

Danny Jacobson and Trudy Marshall are Partners at Employment Lawyers Tauranga and they specialise exclusively in employment law. They operate our Employment Helpline for NZCB members: phone 07 928 0529 for 10 minutes free advice on any employment related issue. (The above is by its nature general, and is not intended to be a substitute for legal advice.)

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