When you Intend to Hire an Independent Contractor but end up with an Employee
Sometimes employers want to engage the services of a person without making certain commitments and taking on certain responsibilities. You may intend to hire someone to carry out a particular function, with the expectation that you will only be required to pay the person for the services rendered. However, depending on the nature of the arrangement between you and the employed person, you may expose yourself to liability for a failure to comply with statutory obligations if that person is deemed your employee. It is important that the parties to an employment contract understand the nature of their relationship from the outset and operate in accordance with the express terms of the contract, or they may end up with more or less than what they bargained for.
The employer/employee relationship comes with certain rights and responsibilities.
The employee is hired pursuant to a contract of services and must provide the services required under the contract in accordance with the directions of the employer. In fact, an employer has a right to supervise and control the manner in which services are rendered by its employees.
As expected, such power is coupled with obligations.
The employee is generally entitled to receive paid vacation, holiday, maternity and sick leave, severance payments, redundancy payments and payment for working overtime, as appropriate, in addition to being paid wages or a salary.
The employer is also generally required, in respect of remuneration due to each employee, to make statutory deductions where payable, for Income Tax, Education Tax and social contributions including for NIS and NHT.
An independent contractor is responsible for his own business
Independent contractors are employed under a contract for services, and have more autonomy than an employee, as the employer does not have the right to dictate the manner in which they carry out their services. Unless otherwise agreed, independent contractors may hire their services to different players in the same industry, including competitors, and determine their working hours. They are also allowed to work 7 days a week, unlike employees.
Independent contractors are not entitled to severance payments, any leave, or payment in lieu thereof, and they are responsible for paying their own taxes, but that too can be beneficial. For example, an independent contractor can deduct the cost of expenses incurred in generating income, such as for tools, protective equipment, and gas. Employees are not privy to such deductions, even if expenses such as for gas, were incurred in carrying out their work.
Employee OR Independent Contractor
While the express terms of a written employment contract will be considered in determining whether a person is employed as an employee or an independent contractor, these are not definitive in resolving the issue. The implied terms of a contract and the dealings of the parties may supersede express contractual terms, leading to the conclusion that a person is an employee, even if that was not what the parties intended.
The courts have considered the following factors in distinguishing an employee from an independent contractor:
- whether working hours and working conditions are fixed by the employer;
- which of the parties provide the equipment or supplies for the rendering of the services;
- any obligation or decision to train the employed person;
- whether the person employed is required to strictly adhere to detailed instructions or a manual;
- whether the person employed is entitled to hire other persons to assist him or substitute for him in carrying out the required services;
- whether the person employed has taken on any financial risk or has made any financial input in the business; and
- any power of management that the employed person is allowed to exercise.
Circumstances that involve the employer assuming responsibility for providing the equipment, workspace and detailed instructions for services rendered under an employment contract, tend to suggest that there is an employer/employee relationship.
It would be wise to seek legal assistance when negotiating and drafting a contract meant for the employment of an independent contractor, so as to not “accidentally” take on the responsibilities of having an employee.
Kimberley Brown is an attorney at Myers, Fletcher and Gordon and a member of the firm's Commercial Department. She may be contacted at email@example.com or through the firm's website www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.