It is crucial that businesses correctly classify its workers as this determines what obligations the business has and what rights the
worker has with respect to entitlements. The consequences of misclassifying a worker can be many and costly.
Here are key areas to consider in your classification process:
1. Legal Right to Control
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If the employer has the right to control how, when, and where the worker performs their tasks, this suggests an employment relationship.
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Different levels of control may exist, such as controlling what tasks are done but not how long they take.
2. Representing the Business
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Workers required to present themselves as part of the engaging entity's business (e.g., wearing branded clothing) are likely to be
employees.
- Independent contractors operate their own business, even if they provide similar services.
3. Ability to Delegate or Sub-contract
- Employees cannot delegate or subcontract their work.
- Independent contractors usually have the freedom to delegate tasks to others.
4. Obligation to Produce a Result
- If a worker is paid based on time or task completion (e.g., per item or commission), they are more likely to be an employee.
- Contracts focusing on results rather than the process suggest a contractor relationship.
5. Provision of Assets, Equipment, and Tools
- Employees typically use the engaging entity's tools and equipment.
- Contractors often provide their own tools, indicating independence.
6. Business Benefits
- If the engaging entity benefits from the worker's goodwill (like customer relationships), this points to an employee status.
- Contractors usually retain their own business benefits.
7. Risk of Injury or Defect
- Employees generally do not bear the risk of work-related injury or defect.
- Independent contractors carry the risk for their work.
Key Takeaways
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Determining whether a worker is an employee or a contractor involves assessing various factors such as control, ability to delegate,
provision of tools, and risk-bearing.
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Legal definitions and legislative changes can affect classification, impacting rights and obligations under employment law.
- Both the working relationship’s context and the contract terms play a crucial role in this determination.
