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It is increasingly common for businesses to seek to engage contractors to perform services rather than employees. This may be because certain contractors have particular skills but are not needed on a long term basis. However, it may also be because business owners (called “principals”) mistakenly perceive that it will save money to engage contractors or will avoid obligations to pay tax and workers compensation insurance for instance. The most important thing for a principal when making a decision to engage a contractor is to do everything possible to establish that there is a genuine independent contract relationship and that the arrangement is not really an employment relationship by another name. There can be expensive consequences if a contractor relationship is not properly established. There are some important differences between an independent contractor relationship and an employment relationship. An independent contractor does not have the guaranteed minimum terms and conditions of an employee. An independent contractor is really no different from any business owner. An independent contractor may take the form of a sole trader, partnership, company or trust and may well have employees or subcontractors of its own. It is arguable that an independent contractor agreement has an implied duty between the parties of mutual trust and confidence. However, the terms of an independent contract are largely contained in the contract document itself. If you are a contractor or looking at establishing a business along contractor lines, it is necessary to decide whether the independent contractor model is suitable for your mode of operation. If you are operating a one man (or woman) business, you will need to consider how to cover such issues as annual holidays and sickness as well as commercial issues such as the need to provide invoices and deal with GST requirements. It is important that you realise that contractors don’t have the same rights and remedies available to them as employees. For instance, if an underpayment occurs, the workplace ombudsman cannot pursue the principal for you. Your main avenue of recovery is by taking common law proceedings in the courts. From a principal’s point of view, contracting relationships have their advantages and disadvantages. Operationally, the contractor generally sits outside the business structure and the principal has limited control over the contractor, so you will need to consider whether this sort of model fits with your style of business. You will also need to consider whether the perceived savings (paperwork and financial) of a contractor relationship are real rather than illusory. The lines between what is truly an employment relationship and what is a contractor relationship have become increasingly blurred in recent years (as has the line between casual and permanent employment). However, it is more than an academic distinction. For instance, it is relevant to questions of tax, workers compensation and other insurance and rates of payment.
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Contractors