DISTINGUISHING BETWEEN AN INDEPENDENT CONTRACTOR AND AN EMPLOYEE
Who is an Independent Contractor?
An independent contractor is a person who exercises independent employment and contracts to do a piece of work according to his own judgment and methods, and without being subject to his employer except as to the results of the work.
An independent contractor also has the right to employ and direct the action of the workmen, independently of such employer and freed from any superior authority in him to say how the specified work shall be done, or what the laborers shall do as it progresses.
What is the difference between an Independent Contractor and an Employee?
- An independent contractor is independent and self-employed and agrees to offer his/her services to another for a fixed price while an employee is a person who works for another for a wage or salary.
- An independent contractor is not entitled to the rights and benefits that an employee is entitled to. For example, the statutory protections that apply to employees such as the rights and remedies under the Employment Act, the employers’ liabilities for acts committed by employees, work injury damages, right to join unions, minimum wages, annual leave, paternity/maternity leave, redundancy payments, statutory remittances such as National Social Security Fund (NSSF) or National Hospital Insurance Fund (NHIF).
- An independent contractor pays his/her own taxes and is responsible for actions in tort.
How to distinguish an Independent Contractor from an employee
The courts have developed various tests that can be used to determine the nature of engagement and distinguish between an independent contractor from an employee. These tests are:
- The Control Test
The control test seeks to answer the question whether there is control being exercised by the employer over the worker and how much control. Where a servant is subject to the command of the master as to the manner in which he or she shall do the work then there is deemed to be control.
The more control that is being exercised, the more likely it is that the worker is an employee regardless of what the contract says.
The control test seeks to determine who has the right to control the following basic elements:
- What must be done; and
- How it must be done.
In the case of John Wachira Githongo v Soyama Hardware Limited (2017) (eKLR) the claimant was engaged by the respondent to source and buy for the respondent hardware materials from Nairobi. The respondent would give the claimant Kshs.5,000 for transport and related expenses and Kshs.15,000/- for each completed assignment. The claimant claimed that he was an employee of the respondent and unlawfully dismissed. In determining whether the claimant was an employee the court considered the control test and held that the claimant was an independent contractor as the respondent did not impose control measures on the claimant about the assignment. There was no evidence that the respondent identified the suppliers or shops the claimant bought the goods from and the respondent imposed no rules on how the claimant would bargain the prices of the goods sold or even delivery timelines in that regard. Other than the respondent providing the necessary funds, the respondent subjected the claimant to no commands in the delivery of the assignment.
- The Integration or Organization Test
This test considers the individual’s degree of involvement in the organization and if the services provided by an individual are integral to the organization, then their involvement is one of employee. If the services can be viewed as part of a separate business of the individual who provides the services, the individual may then be viewed as an independent contractor.
The court in the case of Stanley Mungai Muchai vs National Oil Corporation of Kenya Cause No.447N of 2009 considered the integration test and stated that the integration test is where the worker is subjected to the rules and procedures of the employer rather than personal command. The employee is part of the business and his or her work is primarily part of the business. However, staff of independent contractors may as well perform entries integral or primarily part of the business when in fact, they are not employees.
- The Economic Reality Test
The economic reality test is a test used by courts for the purpose of determining if a person is an employee or if the person is in business on his or her own account as an entrepreneur by considering such things as the extent of the alleged employer’s ability to control, hire, fire, and discipline the person, the nature of the person’s duties, and the payment of wages and who takes the ultimate risk of loss or chance of profit.
(a) Mutuality of obligation
It is where the parties make commitments to maintain the employment relationship over a period of time. The employer has an obligation to provide continuous flow of work or assignments and pay the employee and the employee has an obligation to do the work and complete the assignments assigned to him or her. In the absence of mutual promises for stable future performance, the worker thereby ceases to be classified as an employee.
(b) Equipment
This test considers who provides the tools of service. An employer will essentially be required to provide the employee with the tools of service. However, a consultant will use his or her own tools.
Difference between a Contract for Service and a Contract of Service
A contract for service/consultancy agreement and contract of service/employment contract are common law terms that are used to distinguish between the nature of service provided by a worker to employer.
An independent contractor is engaged through a contract for service. The contract for service sets out the manner in which the independent contractor is engaged, the services to be performed and the mode of payment for the services performed. Whilst an employee is engaged through a contract of service. The employment contract sets out the rights and obligations of the employer and the employee in the employment relationship.
Termination of Contract for Service
The terms of termination of a contract for service are normally set out in the contract. Therefore, a contract for service will be terminated in the manner set forth in the contract.
Conclusion
An independent contractor is therefore someone who is a registered taxpayer, runs his own business, determines his own working hours, employs his own tools and invoices for work done.
In order to determine whether a person is an employee or an independent contractor the courts will consider the substance of the agreement, the facts which show the manner in which the employer and the employee or independent contractor have been operating. The courts are generally of the view that the tests are to be considered jointly and are not to be used exclusively by themselves as they only serve as guides based on the facts of each case.
How can Netsheria help?
We, at Netsheria Intl, have excellent and experienced lawyers who will help you define clear service relationship and help you draft or review employment contract or consultancy agreements. Contact any of our team today or book an online consultation here (provide link)
