The diversity of the work we do means that we use a variety of different legal categories of employment. Each has its own characteristics and obligations with which we must comply. There are real risks in not understanding the different categories set out below and complying with the requirements when employing people in those categories. The law recognises two broad distinctions employees and contractors.
In the case of direct employment arrangements (IEAs and CEAs but not Independent Contractor Agreements) there are a number of typical arrangements covering hours of work and tenure:
Around 40 hours per week usually constitutes full-time hours of work.
Part-timers generally enjoy the same employment benefits and protections (for example, leave entitlements) as full time staff, though in some instances this is on a pro rata basis.
Where a so-called casual works a regular pattern or virtually full-time hours on an ongoing basis, they are likely to be regarded a permanent employee. In this case the employee may be able to claim they were terminated unlawfully and/or be able to claim back payment for other entitlements denied them as a casual.
Casuals are paid only for the time they work.
However, great care is required when entering into fixed term arrangements. There must be a genuine reason based on reasonable grounds for the fixed term and the employee must be advised of when or how their employment will end and the reasons for the employment ending in that way.
Genuine reasons for fixed term/temporary agreements could include the following:
Genuine reasons for fixed-term/temporary agreements could include the following:
- To cover an employee on parental leave or other absence (for example, study leave or special leave without pay)
- To undertake a specific project or work of a finite duration (for example, the implementation of an IT system)
- To cover those situations where there is no guarantee of funding for the work beyond a specific period
- To cover a temporary increase in normal workloads (for example, seasonal fluctuations).
Attention must also be paid to the expiry date. If the employee is permitted to continue working past the expiry date, the employee may be deemed to have become a permanent employee.
Care is needed if an existing fixed-term/temporary contract is to be renewed or extended. A genuine reason will need to exist at the time of the renewal or extension.
If we prematurely terminate a genuine fixed-term agreement, we may be liable to pay the employee for the balance of the term of the agreement. This can be overcome by inserting a notice period in a fixed term agreement, but this also provides the employee with the ability to give notice to terminate the agreement before the stated expiry date.
In some instances you may wish to engage a contractor (a ‘contract for services’) as an alternative to employing a person (a ‘contract of service’). Alternatively a potential employee may ask to be contracted rather than employed. In either case there are risks, implications for us and approval is required (both your manager and ELT must approve engagement of contractors).
An independent contractor agreement is required where the parties want to set up a commercial arrangement. This is usually between a company (referred to as the principal) and a contractor (usually a company but could also be a partnership or a sole trader, which is a single person operating a business under their own name or with a registered business name). The payment basis for a contractor is usually a set price or formula for completion of a task. However in many cases, payment will be in regular installments as progress payments depending on the amount of work completed in the period.
An independent contractor agreement is suited to situations where a contractor agrees to provide specified services for a period or undertakes to complete a project or specified parts of it. This is similar to situations where you engage a building contractor or electrical contractor to build a new home.
However, if the contract in its operation is not a genuine contract arrangement, we are exposed to the risk that the contract was a sham and the contractor was in reality an employee. We may then be open to claims of personal grievance that the claimant was denied entitlements properly due to him/her as an employee (such as annual holidays).
- A written contract specifying the intention of the parties to enter into a relationship of principal and contractor.
- The contractor being free to decide how the work will be performed and the hours to be worked.
- The contractor being free to accept other work and not being tied exclusively to working for the principal.
- The contractor being responsible for providing and maintaining the necessary tools and equipment.
- The contractor being paid on submission of a GST invoice at the completion of the work or on achievement of agreed milestones.
- The contractor being responsible for all employment obligations of its employees.
- The contractor being able to assign the contract to another party.
- The Control Test – concerned with the nature and degree of detailed control over the person performing the work. This is the most durable however other tests are also important in coming to a decision.
- The Fundamental Test – whether the person performing the work is in reality part of the organisation or in business on his or her own account.
- The Intention Test – whether the parties intended the relationship to be an employer-employee relationship.
- The Integration Test – whether in all the circumstances an employer-employee relationship is indicated.