The organization’s legal responsibilities and liabilities relating to an employee and an independent contractor are very different. If the person is an employee, the employer is vicariously liable for the loss and harm resulting from the employee’s negligence committed in the course of his or her employment. By contrast, the entity may not be liable for negligence committed by its independent contractor.
Other responsibilities of employers include the obligations to keep records of their employees, inform the Inland Revenue Department of the commencement and termination of employments, file annual salaries tax returns on employees’ remuneration and take out insurance to cover liabilities for employees’ work injuries.
How to tell the difference between an employee and an independent contractor?
Where the entity or even both parties call the relationship as sub-contracting of services, disputes may arise when the service provider suffers injury in the workplace and finds out he is not covered by any statutory employee compensation insurance or when he is dismissed by the entity and is not entitled to the statutory compensation under the Employment Ordinance. By then, he will often argue it is in fact an employment relationship.
In determining whether an individual is an employee or an independent contractor, it is necessary to consider the entire relationship by looking at all the facts and circumstances between the parties. Labelling the relationship as a sub-contracting is not conclusive. The Court will look behind the label and into the reality of the relationship in determining whether the person should be classified as an employee and therefore entitled to the rights and benefits under the Employment Ordinance.
Unfortunately, there is no one single conclusive test to distinguish a contract of employment from a contract for service. Further, no exhaustive list of factors or strict rules govern the relative weight of each factor. The final interpretation will rest with the Court in case of a dispute. Nevertheless, the following table sets out several common features of the two types of relationships: