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:
TERMS | EMPLOYEE | INDEPENDENT CONTRACTOR |
CONTRACT | Contract is an employment agreement with clear employer-employee relationship terms | Contract is a consultant or independent contractor agreement with clear independent party relationship terms |
APPOINTING AUTHORITY | Referred to as an Employer | Often referred to as Company or Client |
REMUNERATION | An employee is paid a daily/monthly wage or salary based on attendance at the office during the agreed hours and days of work | Independent 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 |
TAXES | Pay As You Earn (PAYE) is deducted and remitted to the Kenya Revenue Authority | Withholding tax and/or Value Added Tax where applicable are withheld and/or paid by the Client |
SUPERVISION | Employee works under supervision | Does not need supervision to undertake their work |
HOURS OF WORK | An employee is subject to fixed hours of work at a specific location | May 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 EQUIPMENT | Provided by the employer | Often have their own work tools or equipment that they bring to or use for the job |
OUTSIDE WORK | Cannot engage in other businesses other than current employment | Can 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 |
LEAVE | Is subject to sick leave, annual leave, maternity/paternity leave and such other statutory leave | Does 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 WORK | Must undertake the work themselves | Can 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 DONE | Employer 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 done | Other 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 DEDUCTIONS | Employer is responsible for and remits the requisite statutory dues to the relevant authorities | An independent contractor is responsible for this themselves |
EMPLOYMENT BENEFITS | Employee 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 adhere | Independent 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 CONTRACT | Employees can be on either fixed term or indefinite (permanent) contracts | Independent 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 LAW | Issues 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. |
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