What makes you a consultant and not an employee?
11 months ago
I frequently get asked whether a certain individual can be engaged as a consultant as opposed to an employee. What distinguishes the two arrangements? Can an employer avoid statutory obligations by referring to a person as a “consultant” or an “independent contractor”? The aim of this article is to illustrate the tests that the court will use to determine whether a relationship is that of employer/employee or that of company/independent contractor.
An “employee” is defined in the Employment Act, 2007 as a person who is employed for a salary and includes an apprentice.
“Independent contractor” is not defined in the Act but is accepted to be a person who is entrusted to undertake a specific project but who is left free to do the assigned work and to choose the method of accomplishing it (Duncan Nderitu Ndegwa v Kenya Pipeline Company Limited & another  eKLR).
The following tests have been adopted by our courts: –
- The control test – an employee is a person who is subject to the command of the employer as to the work to be done and the manner in which the work is done.
An employee is subordinate and dependent on another for their employment. The employer dictates, among other things, the hours of work and other terms and conditions of service. An independent contractor, on the other hand, is independent, free and sets his/her own terms for purposes of undertaking a task he is hired to perform, for example, he sets his or her own hours of work.
- The integration test – an employee is subjected to the rules and procedures of the employer, such as HR Manual/Policies, rather than personal command. The employee is part of the business and their work is primarily part of the business.
In Christine Adopt Lopeyio vs. Wycliffe Mwathi Pere  eKLR the court held that the claimant was an independent contractor and not an employee as she was not subject to any particular rules and procedures of the respondent and she was not under the control of the respondent.
- The test of economic or business reality which takes into account whether the worker is in business on his or her own account, as an entrepreneur, or works for another person, the employer, who takes the ultimate risk of loss or chance of profit;
- Mutuality of obligation in which the parties make commitments to maintain the employment relationship over a period of time. An employment contract entails service in return for wages, and, secondly, mutual promises for future performance. The arrangement creates a sense of stability between the parties.
In Kenya Hotel & Allied Workers Union versus Alfajiri Villas  eKLR, the court held that: –
“…a true independent contractor …will be a registered taxpayer, will work his own hours, runs his own businesses, will be free to carry out work for more than one employer at the same time, will invoice the employer each month for his services and will be paid accordingly and will not be subject to usual ‘employment’ matters such as the deduction of PAYE, will not get annual leave, sick leave…”
In Charles Juma Oleng v M/S Auto Garage Ltd & another  eKLR, the court held that: –
“…I find that the claimant was not sorely under the control of the claimant to claim that she was an employee as under a contract of service. Hers was simply a contract for a service that was occasional and she was duly compensated for her service to the respondent by free accommodation, and payment of a commission that is dully acknowledged…”
Other differences between an employee and an independent contractor
- An employee is paid a net salary by the employer after withholding statutory deductions like the income tax and social security funds like the NSSF and NHIF. An independent contractor’s fees are, however, not subject to such withholding. He pays his/ her own taxes. In Vitalis Oliewo K’omudho vs. AAR Health Services Ltd eKLR, the court held that the claimant was an independent consultant and not an employee since the employer never deducted from his salary any income tax, NHIF or NSSF. All the employer did was to withhold 10% of his pay as he was a consultant.
- An employer will be held liable for the negligent acts of an employee so long as it is within the scope of the terms of the employee’s employment. A person who has hired an independent contractor will, however, not be liable for the wrongs committed by the contractor in the course of the execution of the work.
- An employee will receive terminal dues upon termination while an independent contractor is not eligible to receive terminal dues (Charles Juma Oleng vs. M/S Auto Garage Ltd & another  eKLR).
- An employee is entitled to join a trade union while an independent contractor does not enjoy this right. A trade union’s relationship with a member will only be recognized if the member is an employee and has a valid employer/employee relationship and not when the relationship is that of an independent contractor (Kenya Petroleum Oil Workers Union vs. Giefcon Limited & another  eKLR).
- An employee will receive worker’s compensation benefit for any work place injury and often receives employment benefits from the employer such as medical cover. An independent contractor, on the other hand, is not eligible for worker’s compensation benefits from the person hiring him or her.
- Employees/former employees can pursue claims against their employers/former employers in the Industrial Court whereas consultants pursue their claims in the civil/commercial courts.
It is not the terminology of a contract that the court uses to establish whether a person is an independent contractor or an employee but rather the substance of the contract.
If the substance of the contract depicts an employer/employee relationship, the court will overlook the terminology (Frederick Byakika versus Mutiso Menezes International Unlimited, Cause No.327 of 2014).
An independent contractor does not rely on the business as the sole source of income, he works at his own set time lines and retains a high degree of control and independence. An employee on the other hand usually works for one employer and under his guidance and control, he/she is eligible to some benefits and is free to join a trade union.
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