Independent Contractor Policy
Responsibility for policy: Head of Human Resource Management Division
Approving authority: Vice-Chancellor
Last reviewed: December 2014
Next review date: December 2019
- This policy applies to all staff of the University of Waikato.
- The purpose of this policy is to:
- ensure that only bona fide independent contractors are engaged by the University under an independent contractor contract, and
- reduce the risks to the University associated with defining individuals as independent contractors when they should be regarded as employees.
- This policy should be read in conjunction with the following:
- In this policy:
employee means a person employed by the University under an employment agreement
independent contractor means a person, or organisation, who supplies labour services through contract for service. Those who supply the labour services are not employees of the University, but are employees of another organisation, or are self-employed
independent contractor contract means a written document that sets out the contractual arrangements and the outcomes to be delivered by the independent contractor.
Responsibility for entering into and managing independent contractor contracts
- The responsibility for entering into and managing independent contractor contracts rests with the relevant manager ('job manager') and his or her Dean, Head or equivalent.
- An independent contractor contract may only be used where the tests in Table 1 of this policy are satisfied; if tested in law, the decision will depend on the real nature of the relationship. If the majority of the answers to the questions in Table 1 of this policy are 'yes' and if the real nature of the relationship can be demonstrated to be that of an independent contractor, managers may use an independent contractor contract; in all other circumstances an employment agreement must be used.
- If doubt exists whether an independent contractor relationship is truly in place, the relationship must be considered to be one of employer/employee and an employment agreement must be used.
- Use of an independent contractor contract does not in itself create an independent contractor arrangement; failure to ensure that the majority of the tests set out in Table 1 of this policy are satisfied before engaging a person or organisation under an independent contractor contract may expose the
University to the following risks:
- If the IRD is able to establish that the real nature of the relationship is that of employer/employee and that the independent contractor is in fact an employee, the University risks prosecution for failing to deduct PAYE tax.
- If an independent contractor is able to establish through application to the Employment Authority or Court that in fact the real relationship with the University is one of employer/employee, he or she can then seek the normal protections afforded by employment law. (This may include redress for unjustified dismissal or claims for back payments in relation to an applicable collective agreement.)
- Table 2 of this policy sets out the requirements of the University with respect to the treatment of taxation and other payments for independent contractors versus employees.
- The University's Independent Contractor Agreement Template must be used as the basis for an independent contractor contract, unless agreed otherwise by the Head of the Human Resource Management Division.
- Specific advice about the use of the Independent Contractor Agreement Template is available from the Head of the Human Resource Management Division.
- The signed independent contractor contract must be held by the job manager, with a copy forwarded to the independent contractor. A further copy must be sent to the Chief Financial Officer for use in monitoring the University's financial comments and to help forecast cash flow requirements.
Responsibility for monitoring compliance
- The Head of the Human Resource Management Division is responsible for monitoring compliance with this policy and reporting any breaches to the Vice-Chancellor
- Breaches of this policy may result in disciplinary action under the Staff Code of Conduct.
|Does the independent contractor have control over how, where and when the work is done (within practicality)?||Yes||No|
|Is the independent contractor responsible for quality and pricing?||Yes||No|
|Does the independent contractor supervise the job and can the contractor hire other people to do the work?||Yes||No|
|Is the type of work different from that normally done by other individuals who are employees?||Yes||No|
|Does the independent contractor pay for any expenditure incurred in doing the job?||Yes||No|
|Does the independent contractor invoice the University?||Yes||No|
|Is the independent contractor carrying out work done previously by independent contractors? (or has the work normally been done by employees i.e. custom and practice)||Yes||No|
|Has the independent contractor always worked with the University as an independent contractor? (guide to intention)||Yes||No|
|ECONOMIC REALITY TEST (Fundamental Test)|
|Does the independent contractor supply the necessary tools, vehicle, office, phone etc?||Yes||No|
|Does the independent contractor provide consultancy advice?||Yes||No|
|Is the independent contractor free to work for other organisations?||Yes||No|
|Is the independent contractor paid pursuant to a pre-arranged negotiated fee?||Yes||No|
|Is the independent contractor responsible for tax payments and ACC levies?||Yes||No|
|Do payments include GST?||Yes||No|
|Is the independent contractor responsible for any loss or profit?||Yes||No|
|Is the independent contractor exposed to any financial risks?||Yes||No|
|Is the independent contractor required to arrange their own insurance, including public liability cover?||Yes||No|
|Is the independent contractor liable for correcting sub-standard work?||Yes||No|
|Could the University sue the independent contractor for loss?||Yes||No|
|If the work is not done to specification, can payment be stopped?||Yes||No|
|INDUSTRY PRACTICE TEST|
|Is there an Industry Practice as to whether the work is generally performed by independent contractors or employees?||Yes||No|
|If so, is the Industry Practice to use contractors to carry out this work?||Yes||No|
|Taxation and Other Payments||Independent Contractor (Sole Trader or Company)||Employee|
|Tax||Taxation requirements will vary depending on whether the independent contractor operates as a sole trader or company, and also on the nature of the services to be performed. Further information is available from the Chief Financial Officer.||University deducts PAYE|
|ACC Payments||Independent contractors responsibility||University's responsibility|
|Insurance||An independent contractor should have public liability insurance unless the contract specifies otherwise or the services are provided on University premises||University primarily responsible|
|Termination||According to contract - High Court overview||Justification required - Employment Relations Act|
|Holiday and Sick Pay||Not applicable (may be paid by the independent contractor to own employees)||University responsibility, subject to Employment Agreement and Holidays Act|