You need to be careful when deciding between employee or contractor. The mistake of paying someone as a contractor if they really fall under the category of an employee can be very expensive. This can be a trap that can cause you serious problems later.
Typically, an employee has an employment contract whereas a contractor has a ‘contract for
services’. There are a number tests that the courts have used to determine the nature of
- Intention test– looks at the intentions of each party to the agreement as to the nature of the relationship.
- Control test – examines the degree of control the employer or principal exerts over the manner, in which the work is done. A high level of control suggests that the person engaged to perform the services is an employee.
- Independence test – examines the level of independence the person engaged to perform the services exerts over their work. A high level of independence suggests that the person engaged to perform the services is an independent contractor.
- Fundamental test – considers whether the person engaged to perform the services is doing so as a person in business on their own account. If the answer is “yes”, this suggests that the person is an independent contractor; if the answer is “no”, this suggests that the person is an employee.
- Integration test – looks at whether the person engaged to perform the services is integrated into the business. If the person is integrated into the business, this suggests that they are an employee. By contrast, if the person is not integrated into the business, but rather is an accessory to it, this suggests that they are an independent contractor.
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