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Independent Contractor Policy


Responsibility for policy: Head of Human Resource Management Division
Approving authority: Vice-Chancellor
Last reviewed: September 2011
Next review date: September 2014

 

Print Version

Application

  1. This policy applies to all staff of the University of Waikato.

Related documents

  1. This policy should be read in conjunction with the following documents:
    • The Employment Relations Act 2000

Purpose

  1. The purpose of this policy is to:
    1. ensure that only bona fide independent contractors are engaged by the University under an independent contractor's contract;
    2. reduce the risks to the University associated with defining an individual as an independent contractor when they should be regarded as an employee.

Definitions

  1. In this policy
employment agreement means a contract of service between the employer and an employee and includes an employee's terms and conditions of employment

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 contracts

  1. The responsibility for entering into and managing independent contracts rests with the relevant manager ('job manager') and his/her Dean/Head or equivalent.
  2. An independent contract may only be used where the tests in Table 1 below 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 are 'yes' and if the real nature of the relationship can be demonstrated to be that of an independent contract for service, managers may use an independent contract (contract for service); in all other circumstances an employment agreement must be used.
  3. 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.
  4. 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 below are satisfied before engaging a person or organisation under an independent contractor contract may expose the University to the following risks:
    1. 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.
    2. 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, they 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 1

CONTROL TEST



Independent Contractor
Employee
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
INTEGRATION TEST



Independent Contractor
Employee
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)



Independent Contractor
Employee
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



Independent Contractor
Employee
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
  1. Table 2 below sets out the requirements of the University with respect to the treatment of taxation and other payments for independent contractors versus employees:

TABLE 2

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

  1. The University's Independent Contractor (Contract for Service) template must be used as the basis for an independent contractor contract, unless agreed otherwise by the Head of the Human Resource Management Division.
  2. Specific advice about the use of the Independent Contractor (Contract for Service) template is available from the Head of the Human Resource Management Division.
  3. 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 commitments and to help forecast cash flow requirements.

Breaches

  1. The Head of the Human Resource Management Division is responsible for monitoring compliance with this policy and reporting any breaches to the Vice-Chancellor.
  2. Breaches of this policy may result in disciplinary action under the Staff Code of Conduct.

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