Freelancers vs Employees
Contract for Service vs Contract of Service
A contract of service defines the employer-employee relationship, including the terms and conditions of employment. The contract must include certain terms and essential clauses, such as hours of work and job scope.
In contrast, a contract for service is between a client and an independent contractor (or self-employed person), wherein the client engages the independent contractor to provide certain services. This distinction is important as an independent contractor is not protected by the provisions of the Employment Act. Some key factors that would indicate an independent contractor relationship as opposed to an employment relationship include instances where the person engaged to provide a service:
- is responsible for the production process, timing and method of production;
- owns the tools and the equipment for the factors of production;
- is not provided with a working place and materials;
- carries on business on his or her own account instead of for an employer;
- is liable for any risk of loss;
- is not bound by working hours and does not have leave benefits; or
- is paid upon completion of a project.
There is, however, no single conclusive test to distinguish a contract of employment from a contract for services.
Some of the factors to be considered in identifying a contract of employment include:
- Who decides on the recruitment and dismissal of employees?
- Who pays for employees’ wages and in what ways?
- Who determines the production process, timing and method of production?
- Who is responsible for the provision of work?
- Ownership of factors of production
- Who provides the tools and equipment?
- Who provides the working place and materials?
- Economic considerations
- Is the business carried out on the person’s own account or is it for the employer?
- Can the person share in profit or be liable to any risk of loss?
- How are earnings calculated and profits derived?
An employer cannot rely on a contract labelled “for service” when in substance the contract is an employment contract. If an employer incorrectly characterises an individual as an independent contractor when that individual is an employee, that employer may be penalised.
POSSIBLE MISIDENTIFICATION OF CONTRACT OF SERVICE:
For example, it is possible that a technical crew person such as a grip, may be interpreted to be an employee, and therefore is protected under the Employment Act. This is because the grip may:
- have no control over the production process, timing and method of production;
- does not own the tools and equipment for the factors of production
- does not determine place, time, and materials of work
Which means that, should an issue arise, both parties will need to go to court, to establish whether the relationship between the parties are a client-SEP relationship or a employer-employee one (and the incident be covered under Employment Laws in Singapore).
The safest way is for you, the freelancer, to learn to protect yourself, before you ever reach a situation where going to court is necessary. And that means ensuring you enter into proper written contracts on jobs, take care of your own insurance and indemnity matters, and know how to conduct your services as a professional business operation. Everything, your payment, your scope of work, hours of work, etc, all depend upon negotiation and agreement prior to the project.
You also can’t fall back and say “but this has been our industry standard” when there is no written agreement. It could be considered as a verbal agreement, yes, and a verbal agreement is considered legally binding. However, the onus would be on you to prove in court that the agreement had indeed taken place.
Now that you see how important the contract is, you may wish to learn what you should have in a contractual agreement before beginning work on any assignment.