Classifying Contractors and Knowing Their Rights – Devi Ramnath
Whether it’s for seasonal employment, cost savings, or for flexibility, at some point in time a company may consider engaging a contract worker. Before doing so it makes sense to understand the different types of contractors and their legal rights, and as a result, the obligations of the company engaging the contractor.
The term “contractor” is used colloquially in T&T and can refer to multiple types of engagements.
Investopedia defines an independent contractor as “a person or entity contracted to perform work for or provide services to another entity as a non-employee.” In this instance, the individual is seen as a service provider providing a “contract for service.” According to the Employers Consultative Association of Trinidad & Tobago (ECA), the term “contract for service” refers to “hiring an individual or group of individuals as an independent contract for services being provided by the individual or group e.g. caterers, gardeners, cleaning services etc.” In other words, these are independent contractors who can be self-employed, may have several clients, possesses their own tools to carry out their work and is in control of the scope of their work. The independent contractor has the responsibility for statutory deductions (Income tax and National Insurance) for themselves and/or their employees. As such, an independent contractor is a service provider and usually prepares a proposal to be considered for an engagement and submits an invoice after the service has been completed. If the company engaging an independent contractor is providing the facilities for the contractor to conduct and complete their work, there is an obligation to meet the health and safety requirements of the OSH Act.
A “contract of service” on the other hand refers to a fixed term contractor engaged either directly by the company’s HR Department or indirectly via an agency, and the company is usually responsible for managing their scope of work. Either the company or the agency would have the responsibility for the contract worker’s PAYE and statutory deductions, in addition to providing workmen’s compensation and public liability insurance.
According to the Organisation for Economic Co-operation and Development (OECD), approximately 11% of the workforce were engaged on a contractual basis as of 2017.
Considerations when entering into a contract of service relationship
Scope of Work:
- Project of short or specific duration where the contract includes a start and completion date based on the scope of work and there is a genuine purpose for structuring the contract on a temporary fixed term basis. The company engaging the contractor could be exposing itself to industrial action if it cannot identify a genuine purpose.
- Ensure the contract comes to an end because the task was completed or the post was abolished, or if the type of work that the contractor was engaged to perform is no longer available.
- A specific project requires specialized knowledge or expertise that warrants engaging a contractor.
- If the need is based on exigent circumstances such as to temporarily replace employees on extended leaves of absence.
- When the said contract comes to an end, is there a basis upon which the contractor could contend that s/he had a reasonable expectation of a renewed contract?
Terms of Contract
In addition, other key points a company should note when considering engaging a contractor:
– Provide a clean, safe working environment in accordance with the OSH Act.
– Working hours should not exceed a normal work week of 40 hours per week (with breaks) or 173.3 hours per month (exclusive of breaks) If working hours exceed this bracket, overtime is due to the worker based on the Second Schedule of the Minimum Wage Act.
– Contract workers are entitled to sick leave and vacation under the Minimum Wage Act if they are earning within 1.5 times the minimum wage. For contract workers earning more than this, sick leave and annual leave is agreed upon by both parties and the standard practice for workers engaged continuously for 6 months is 14 days sick leave, and after one year’s continuous service, 10 days annual leave.
– The Retrenchment and Severance Act confirms that workers who complete 1 year of service are entitled to severance and it does not distinguish between contract workers and employees.
Traps to Avoid
The International Labour Organization (ILO) suggests that rolling short term contracts are an attempt to deprive workers of benefits that permanent employees are afforded. The local courts have a similar view and interpret the essence of the relationship between both parties in its entirety:
TD 138 of 2008 CWU & Trinidad Hilton – “It cannot be that all an employer has to do is to employ a person on a succession of short term contracts over a period of several years and successfully claim that this person is not a permanent employee because each piece of paper, each short-term contract stands by itself. To argue that as a strict common law position to my mind only serves to invoke the Court’s equitable jurisdiction to deal with the abuse of such a position” Delivered by His Honour Mr. Gregory Baker
RSBD No. 4 of 1996 OWTU and Schlumberger states that “such legislation (referring to the Industrial Relations Act) is to be seen as an instrument of social engineering and that the Court must not lose sight of its function to ensure the intended beneficiaries of such social engineering are not deprived of their rights by reason of their relatively inferior bargaining strength. We must look beyond the veneer of the contract and expose to full view what in reality is a mere attempt at circumvention of the Act. …. It is for the protection of workers that the court must refuse to enforce such a provision in a contract of employment, where to enforce it would result in depriving the worker of benefits.”
In addition, such types of engagements can also affect the mental health of your workers. Coping with lack of job security in addition to the daily circumstances of life, can cause stress which can negatively affect the health of the worker and by extension the work that they perform. When classifying a worker as a “contractor”, it is important to ensure that all the guidelines are followed and that it is a genuine business decision rather than a mechanism for avoiding employer obligations to employees.
Recommendations when hiring contract workers or independent contractors:
- Ensure that the worker understands and accepts the nature of the engagement
- The issue of the expectation of contract renewal should be properly assessed, documented and clearly expressed to the contractor
- The duration of the engagement should be clearly defined in the contract as failure to do so can work in favour of the contractor.
- Have well-drafted contracts with a termination clause that addresses termination before the completion date
- Ensure that contractors are not treated as permanent employees, but that they understand and comply with your company’s policies.
Overall, it should be noted that all communications regarding the engagement is understood by all parties. It would be also be wise, therefore, to ensure that guidelines are provided by the HR/ IR department or an IR consultant to the relevant line manager interested in engaging the contractor.
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The Ministry of the Attorney General and Legal Affairs. (n.d.). Workmen’s Compensation Act. [online] Available at: https://rgd.legalaffairs.gov.tt/laws2/Alphabetical_List/lawspdfs/88.05.pdf
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