Employee or contractor?

Difference between an employee and a contractor

Employee

An employee is a person employed to do any work for wages or a salary under an

. This includes people in relationships (when someone is employed by 1 organisation, but their day-to-day work is controlled by another. For example, temping through a recruitment agency or being on secondment to another organisation).

Triangular employment situation

Employees:

receive a wage or salary
have an employment agreement with their employer.

Employee rights and responsibilities

An employee is not a sharemilker.

Contractor

A contractor (also known as a

or independent contractor) is engaged to perform services under ‘a contract for services’.

Contractors:

are self-employed and earn income by invoicing for their services
do not have an employment agreement
are not covered by most employment-related laws and the Employment Relations Act 2000
cannot bring personal grievances
Personal grievance
An action that an employee can take against a current or former employer when they have an employment issue they cannot resolve.
, and general civil law determines most of their rights and responsibilities.

Health and safety laws apply to both employees and contractors.

Your rights and obligations – WorkSafe

Employment Relations Act 2000 - New Zealand Legislation

Human Rights Commission

Legal tests that help decide whether someone is an employee or a contractor

The courts have developed 4 legal tests to help decide whether someone is an employee or a contractor. Each situation needs to be considered and the tests below will help you to work out if someone is an employee or a contractor. No one test will give you the correct answer.

The legal tests:

Intention test
Control vs independence test
Integration test
Fundamental/economic reality test.

	Employee	Contractor	Example
Employment agreement	Yes	No	An employee must have a written employment agreement.
Contract for services	No	Yes	A contractor has a ‘contract for services’, rather than an employment agreement.
Holiday pay	Yes	No	A contractor doesn’t get paid holidays. An employee must get paid holidays.
Entitlements for working on public holidays	Yes	No	A contractor doesn’t get paid time-and-a-half for working on a public holiday or receive an alternative holiday (unless agreed). An employee must be paid at least time-and-a-half for working on a public holiday and an alternative holiday if it is an otherwise working day for them.

	Employee	Contractor	Example
Control over work, time, location	No	Yes	An employee usually has little or no control over the work to be done. The employer largely directs where, when, what and how they work.
Set hours	Yes	No	A contractor generally has more discretion about when and how much time is spent at work compared with an employee who will likely have set times and days to be at work.
Control over their availability	No	Yes	A contractor generally has more control over their own availability to provide services. For example, they may make themselves unavailable on certain days of the week, or for a longer period because they’re going on holiday. An employee generally has to request permission from their employer to take time off work.
Supervision and direction	Yes	No	A contractor has their own ‘plan’ of what work to do each day and which site to work at. They are usually a specialist in their field of work, and do not need to be closely supervised or instructed how to do their job.

	Employee	Contractor	Example
Works with own equipment	No	Yes	For an employee, the employer usually provides all tools and equipment to do the work. For example, a work van. A contractor generally provides their own tools and specialist equipment.
Team integration	Yes	No	A contractor is less likely to be integrated into the team. For example, they are not invited to organisation events.
Paid by results	No	Yes	An employee usually has a set fee for their work. For example, a salary or wage, whereas a contractor may be paid by results (for example, a builder who is paid by build progress).
Reimbursed for work-related expenses, for example travel, petrol, equipment hire	Yes	No	An employee is more likely to be reimbursed for work-related expenses whereas for a contractor, these form part of the costs of running their business.
Uniform that has the logo of the company working for	Yes	No	An employee is likely to wear the employer’s uniform (if it has one). A contractor would usually supply their own branded clothes.

This test involves looking at the total situation of the work relationship to determine its economic reality. A contractor is a person in business on their own account.

	Employee	Contractor	Example
Fees	No	Yes	A contractor usually charges a fee for their services, whereas an employee is paid a salary or a wage.
Minimum wage	Yes	No	A contractor can be paid whatever rate is agreed to. An employee must receive at least the minimum wage for all hours worked.
Pays tax directly to IRD	No	Yes	For an employee, the employer pays PAYE tax and ACC on the employee’s behalf, and the employee is paid net wages or salary. A contractor generally pays their own tax directly to IRD. In special situations, the company or person the contractor is contracted to may deduct withholding tax on their behalf.
GST registration	No	Yes	A contractor must register for GST if they are earning over $60,000.
ACC levies	No	Yes	A contractor is responsible for paying their own ACC levies.
Profit	No	Yes	A contractor is able to profit from their work. For example, they can often decide how much to charge for their services, and how many jobs to take on.
Have employees do the work	No	Yes	An employee is required to perform their job personally and is not able to engage anyone to replace them at work. A contractor can often get someone else to do the work instead of them either by subcontracting the work or employing their own employees.
Financial risk	No	Yes	A contractor carries financial risk. For example, they may not profit from a job if their costs exceed budget. They may also give guarantees to cover breaches of their responsibilities. They may carry their own insurance to help protect against these risks.
Mainly working for one entity	Yes	No	A contractor may work for multiple principals at the same time. For example, a builder having contracts to do work for Company ‘A’, Company ‘B’ and Company ‘C’.
Advertises for work	No	Yes	An employee looks for work – for example, answers a job ad looking for work compared with a contractor who often advertises their services.
Invoices	No	Yes	A contractor usually issues invoices setting out their fees or charges to get paid. An employee usually gets paid automatically and receives a pay slip.

Employee: If you get it wrong

If you are incorrectly hired as a contractor rather than as an employee, you may miss out on:

your minimum employment entitlements (for example, annual holidays and sick leave)
your KiwiSaver superannuation subsidy.

You may also pay tax and ACC levies that you should not have to.

Deductions

What to do if you cannot agree on employer/contractor status

If there is a dispute about whether someone is an employee or a contractor, you can call us for help. You can call our Service Centre to help guide you through the information, or our early resolution team can also help you resolve issues quickly and informally.

Call our Service Centre: 0800 20 90 20

Early resolution

If these services do not help you find a solution you can use our

service, or you can make an application to the for a . You’ll have to pay fees for applying to the Authority.

Employment Relations Authority

Mediation

On this page

Difference between an employee and a contractor

Employee

Contractor

Legal tests that help decide whether someone is an employee or a contractor

Employee: If you get it wrong

What to do if you cannot agree on employer/contractor status

Related pages

Rights and responsibilities

Types of worker

Early resolution

Mediation

Employee or contractor?

On this page

Difference between an employee and a contractor

Employee

Contractor

Legal tests that help decide whether someone is an employee or a contractor

Employee: If you get it wrong

What to do if you cannot agree on employer/contractor status

Related pages

Rights and responsibilities

Types of worker

Early resolution

Mediation

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