Question

QUESTION Maggie delivers bread for the Italian Bread Shop ("IBS") based in Parnell. IBS bakes and distributes a variety of fresh breads and cakes. Maggie is engaged to deliver the bread throughout Auckland's eastern suburbs. Her contract contains a number of terms and conditions but does not directly address her work status. For her work Maggie must provide her own van which she purchased with a bank loan for $15,000. IBS paid a further $1,000 to have the van painted in Italian colours and sign-written with the IBS logo. While working Maggie is required to wear the IBS uniform provided to her. She must deliver the bread to the outlets and at the times directed by IBS. The contract also requires Maggie to: purchase and maintain a mobile phone maintain a goods delivery drivers licence take out insurance against loss or damage to goods while being delivered not work with any competing organisation. Maggie's contract may be terminated by either party with 30 days' notice. It may be terminated immediately by IBS if Maggie loses her goods delivery driver's licence, if she seriously breaches her contract, or if she is unavailable to make deliveries (without providing a replacement driver) for more than 3 days. Maggie is paid a flat delivery fee of $50 per day plus $10 per carton of bread delivered (with a minimum of 30 cartons guaranteed), so regardless of workload she earns at least $350 per day. These fees are intended to pay Maggie for her services and cover all her petrol and vehicle expenses. Her fees are totalled and paid monthly upon presentation of her delivery sheets. All drivers are entitled to charge GST in addition to their fees (if GST registered) but must provide a separate invoice when doing so. Maggie must keep her own business records and pay her own taxes. Maggie's contract requires her to work 6 days a week for 50 weeks a year. If she is unable to work (due to illness or holidays) she is required to arrange with another driver to make her deliveries. Advise Maggie whether she is an independent contractor or employee and explain the significance of the distinction.

Answer 1

I would advise Maggie that she is an independent contractor.  

However, for the sake of the answer I would write arguments supporting both scenarios.

Maggie as contractor :

Contract

- Maggie is part of Courier industry which is known for employing contractors traditionally.

- Maggie is entitled to charge GST meaning she is also entitled to discounts for GST on goods purchased.

- Maggie has to keep her own records & books of accounts.

- the Loan for van is in Maggie's name & she has to pay it from her own pcoket

Control

- Maggie purchased her own van. She maintains the van. So she enjoys privilage to the van when she is not working.

- Maggie owns & manintains her own mobile phone. IBS does not pay her for any allowance or any reimbursements for mobile call charges.  

Risk

- Maggie has to take the driver's licence at her own cost & she has to maintain it . If she looses the licence then she is loosing the work. So the work is not guarantted.

- Magggie has to take out the insurance on her own .

- Maggie is not entitled to any sick leave or annual leave. If she cant work on a specific day then she has to make arrangments with other drivers to organise the delivery.

- The risk lies with Maggie to pay the loan for the van in case she looses the work.

Maggies as an emloyee :

Contract

Maggie has to work stipulated hours & stipulated weeks. If she does not adhere to norms then her contract can be terminated. Ideally, if someone is a contractor then that person should be allowed to work at his/her own will. But stipulations of minimum hours of work don't let Maggie to use her time as per own wishes. So effectively she is an employee.

- Maggie is not allowed to work for a competitor company . If she is an contractor she should be allowed to work for anyone for any activity. THe restriction also prevents her from making more money from some other clients. So she is an employee.

COntrol :

- Maggie has to paint her van to reflect IBS logo. So this prevents her to work for other client. She can use the van exclusively for IBS. So she is not a contractor.

- Maggie has to wear IBS uniform which is more of a requirement for an employee.

- Maggie earns a fixed rate which is more like a daily wage rate. THe daily rate covers her cost for the van /fuel as well as for her services. 'Cost for services' effectively means 'cost of time'. So she is an employee.

- Maggies fees are paid monthly which is again more like a monthly salary. Fees are not paid after each delivery.

Risk :

- Maggie does not have to bear the risk for sale of breads

- Maggies gets a minimum amount of pay per day. So she does not have to bear the risk of not earning any money or suffering from losses

For tax purposes :
Status of contractor means Maggies would be able to deduct expenses to conduct the business when she files her income tax return. She can get dedction for expenses like insurance, petrol, van maintenance, mobile bill etc. THis will reduce her income which is liable to tax. If she is an employee she would not get these deductions & her entire receipted income is subject to tax .

Status of contractor means Maggie can charge GST & issue a GST invoice. This enables her to get a deduction for GST on her purchases ( ingredients). So this will benefit her.

IRD guidelines:

IN favour of Maggies as contractor

Control :

Independance : Maggie can work more number of hours & can earn more money. Maggie can use the van & mobilefor her personal use.

INtegration : Maggie maintains her own records & she can issue GST invoice.

Intention : Maggie has her own investment in the business & she has obtained a loan for the same . She is using the van to derive profits from it .

Fundamental test : Maggie owns the assets & bear to pay the loan . She can sell the van any point of time.

IN favour of Maggies as employee

Control : Maggies gets paid for extra work. Her amount of pay is decided by IBS . She can't bargain.

Independance : Maggie does not have independance to work for another employer.

INtegration : Maggie has to work by herself . She does not have freedom to employ someone else. She has to wear the IBS uniform & her van has the IBS logo .

Intention : THe intention of the contract is to get someone to do a stipulated work for a stipulated time of the day for stipulated amount of money .

Fundamental test : THe contract stipulates the conditions to run the business. Maggie can't sell the business to someone else.