Distinction between Employees and Independent Contractors

Contracts on service provision may take the form of a contract of service (employment contract) or a contract for services (independent contractor/consultant agreement). Independent contractor agreements involve entities or individuals who are genuinely self-employed, not the company’s employee. When issues arise, the Courts usually look into the substance rather than the form of such agreements to determine whether or not they are in fact employment contracts masked as independent contractor agreements to enable an employer avoid its obligations. Such an investigation into substance would include an examination of the contractual provisions in addition to whether or not the level of control amounts to employment. The following is a summary of the distinction between employees and independent contractors:

CONTRACTContract is an employment agreement with clear employer-employee relationship termsContract is a consultant or independent contractor agreement with clear independent party relationship terms
APPOINTING AUTHORITYReferred to as an EmployerOften referred to as Company or Client
REMUNERATIONAn employee is paid a daily/monthly wage or salary based on attendance at the office during the agreed hours and days of workIndependent contractor is paid a service fee upon the delivery of tasks or assignments agreed upon and upon issuance of invoices for work done or completed
TAXESPay As You Earn (PAYE) is deducted and remitted to the Kenya Revenue AuthorityWithholding tax and/or Value Added Tax where applicable are withheld and/or paid by the Client
SUPERVISIONEmployee works under supervisionDoes not need supervision to undertake their work
HOURS OF WORKAn employee is subject to fixed hours of work at a specific locationMay or may not consent to fixed hours and can negotiate a flexible work schedule provided they deliver on tasks or assignments. This is provided for in the contract.
WORK TOOLS AND EQUIPMENTProvided by the employerOften have their own work tools or equipment that they bring to or use for the job
OUTSIDE WORKCannot engage in other businesses other than current employmentCan engage in other businesses; however, there is usually a disclaimer in most contracts that such other business not be in competition with the Client’s business and not take too much time away from that required to be devoted to Client
LEAVEIs subject to sick leave, annual leave, maternity/paternity leave and such other statutory leaveDoes not need such as they are able to set their work hours or days of work and work from any location and take such absences as may be contractually agreed upon
CONDUCT OF WORKMust undertake the work themselvesCan delegate or bring on board other staff or a substitute when unable to undertake the work personally; though some roles or appointments are specific to the particular person because they have been engaged based on a specific skill, expertise or experience they have represented they have for the task required
WORK TO BE DONEEmployer decides the work to be done, the way in which it shall be done, the means to be employed in doing it, the time when, and the place where it shall be doneOther than maybe the work to be done (as the Client often identifies the need it has and sets out to find a person who can provide/fulfil this need), the way in which it shall be done, the means to be employed in doing it, the time when, and the place where it shall be done are often things an independent contractor is able to negotiate and determine for themselves with the consent of the Client
STATUTORY DEDUCTIONSEmployer is responsible for and remits the requisite statutory dues to the relevant authoritiesAn independent contractor is responsible for this themselves
EMPLOYMENT BENEFITSEmployee is subject to such benefits as the Employer may provide such as pension, medical, accident covers/compensation, allowances, employee share ownership schemes, etc. Terms or qualifications for such benefits are already set and an employee must simply adhereIndependent contractor does not participate in employee benefits; though can negotiate certain benefits for themselves such as being able to get share rewards on achieving certain targets or milestones. Their ability to negotiate for some of these things, or to accept or refuse them, if offered, and set terms favourable to them is what sets them apart.
TERM OF CONTRACTEmployees can be on either fixed term or indefinite (permanent) contractsIndependent contractors are on fixed term contracts – just for the duration required to undertake the work, then it terminates. However, such fixed term contracts may be renewable or extendable based on the nature of the service
GOVERNING LAWIssues arising from employment contracts are primarily guided by the Employment Act, 2007.Issues arising from independent contractor agreements are primarily guided by the general law of contract.
The above distinctions are highlighted in the cases of, among others, Kenneth Kimani Mburu & Another versus Kibe Muigai Holdings Limited [2014] eKLR, Paul Ochieng’ Agola v Gateway Marine Services Limited [2018] eKLR, Fredrick Byakika v Mutiso Menezes International Unlimited [2016] eKLR and Ready Mixed Concrete (South East) Ltd versus Ministry of Pensions and National Insurance [1968] 2 QB 497.

In case you need any clarifications or assistance, feel free to get in touch with us at info@nmkadvocates.com.


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