The Government will seek to curb employers improperly classifying staff as “independent contractors”.

The move, the Government said, came as employee benefits are being compromised, leading to disputes being brought before the Employment and Labour Relations Tribunal.

The practice has become increasingly prevalent since the pandemic as companies sought creative ways to reduce their business costs.

The Minister of Economy and Labour Jason Hayward has shared with Parliament the new Independent Contractor Guidance 2023, which is published under the Manager of the Labour Relations Section of the Employment Act 2000.

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Independent Contractor Guidance.pdf

But he warned legislators that employee misclassification had serious economic ramifications for staff, including reduced earnings and benefits.

They lose rights to the statutory minimum hourly wage coming into effect this June; lose their legal right to receive overtime pay, vacation and public holiday pay, maternity and paternity leave and other paid entitlements afforded to employees under the Employment Act 2000 or a collective bargaining agreement.

Independent contractors do not qualify for workers’ compensation if they are injured on the job and are not eligible to bargain collectively or form a bargaining unit.

They are fully responsible for their social insurance and health insurance payments, which would otherwise be split evenly between employers and employees.

Mr Hayward cited US Economic Policy Institute figures that had a typical US construction worker, classified as an independent contractor, losing as much as $16,729 per year in income and job benefits as a result.

The Independent Contractor Guidance is the result of a collaborative effort of the Labour Advisory Council, the tripartite body chaired by the minister and including representatives for employers, employees and government. It comes into effect at the beginning of the next financial year April 1.

The ministerial statement said: “While the improper use of independent contractor contracts has been practised for some time, we have noticed that since the Covid-19 pandemic, employers are seeking creative ways to reduce the cost of doing business while employees are exploring work that allows them more flexibility and customisation.

“This is resulting in an increase of non-standard work. These practices require a distinction to be made between employees and independent contractors.”

The guidance lists 12 indicators that materially differentiate employees from independent contractors.

They are:

1. Continuity of work

2. Tools and equipment

3. Integration

4. Method of payment

5. Training

6. Profit and loss

7. Contract type

8. Control over work

9. Open market competition/number of clients

10. Benefit responsibility

11. Business registration

12. Termination