Contract For Service vs. Contract of Service

A detailed Summary of Contract For Service vs. Contract of Service

Distinguishing between a contract of service (employee) and a contract for services (independent contractor) is vital in determining workers rights, and the obligations owed by their employers. Sometimes it is not clear whether a person is an employee or an independent contractor, which can lead to disputes between workers and employers. This essay discusses how to distinguish between a contract of service and a contract for services by looking at the intention of the parties then, by using 4 tests established by the Courts. It also looks at the reasons it is important to distinguish between an employee and an individual contractor because of the differing rights obtained by employees and independent contractors. First the history about how the employer and worker agreement was previously decided, by looking at the Employment Contracts Act, changed to looking at the Employment Relations Act to distinguish.

Previously the Employment Contracts Act 1991 clearly expressed "contractual intentions of the parties prevailed over all other considerations" (http://www.bzone.co.nz/employment/0,,1836-981618,00.html) so if the contract was entirely in writing, that was the end of the inquiry. But now, under the new law, section 6(2), of the

The Integration test is to consider "to what extent was the employee integrated into the employer's organisation" (O'Sullivan, 2000, p.g. 23). Applying this test, a job is more likely to be done by an employee if it is necessary for the business organisation, the type of work commonly done by 'employees', not being a one off job, and for the benefit of the business rather than the worker. A case that includes the Integration test is that of Challenge Realty Lt v. Commissioner of Inland Revenue [1990] 3 NZLR 42. In this case the Real Estate agents were found to be an integral part of the agency's business and therefore were employees.

In conclusion, distinguishing between a contract for service and contract for services is done in two steps. The first step is to distinguish the intention of the parties. If the intention cannot be made out then there are four tests that may be applied to distinguish between a contract of service and a contract for services. This is the second step. These four tests are the Control test, the Integration test, the Economic Reality test and the Multiple test. It is important to distinguish the nature of the worker and employer relationship because employees and individual contractors have different rights than each other. For example an employee has their tax deducted from their salary by way of P.A.Y.E where as an individual contractor gets paid their fees then they pay GST to pay their taxes. The main change from using the Employment Contracts Act to distinguish the relationship to using the Employment Relations Act was that under the Employment Contracts Act, clearly expressed contractual intentions of the parties prevailed over all other considerations whereas section 6 of the Employment Relations Act directs the Employment Court and Authority to "determine the real nature of the relationship." Lastly, it is important that it is distinguished between a contract of service and a contract for services to know what rights each individual worker is entitled to which will avoid any confusion in the future of the workers employment.

The Economic reality test looks at to what degree can the worker be seen to have been in business on their own account (O'Sullivan, 2000). If they are in business by their own account then that person is likely to be a contractor. If not, then that person is more likely to be an employee. The test looks at such criteria as whether the type of business, or the nature of the job, requires using an independent contractor, the behaviour of the parties before and after entering the contract, who is legally liable if a job goes wrong and who is responsible for correcting substandard work.

There are many reasons why it is important to distinguish between a contract of service and a contract for services. Thomas (2002) lists examples of the

Some common words found in the essay are:
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Approximate Word count = 1897
Approximate Pages = 8 (250 words per page double spaced)

Category: Miscellaneous