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It is important for employers and employees to differentiate between a Contract of Employment and a Contract for Service.

They should also know the key factors in identifying such contracts. These include the right to control recruitment and work processes, ownership and provision of equipment and materials and other economic considerations, a spokesman for the Labour Department said today (July 2).

The right of control factor depends on who decides the recruitment and dismissal of employees; who pays for the employees' wages and in what ways; who determines the production process and schedule as well as the method of production; and who is responsible for the provision of work.

To determine the ownership, one has to find out who is responsible for providing the tools, equipment, the workplace and production materials.

As for economic considerations, it is necessary to see whether the person is running a business on his own account or for his employer; whether he has to bear the risk of profit and loss; and how his earnings are calculated and profits derived.

Taking the clothing industry as an example, the spokesman said the factory proprietor would sometimes rely on a "contractor" to recruit workers of the cutting and pressing departments.

If a "contractor" works in the factory, uses materials and tools in the premises, abides by factory rules and regulations just like any other workers, and does not derive any profits from the operation of the factory's business, then the "contractor" is most probably an employee of the factory. In this case, the factory proprietor still has to shoulder his responsibilities as an employer.

On the other hand, he continued, the sub-contracting system in the construction industry was the most typical example in which contractors were engaged.

For example, a contractor, who has been awarded by a developer or a main contractor a project to install aluminium window frames for a building, will have to provide tools and materials, recruit workers and ensure that the project be completed on time. His profit will be the excess of the project fee over the total costs.

If he has set an unrealistically low project fee or the materials costs are unexpectedly high, he will incur a loss. Whether he makes a profit or incurs a loss, the contractor will have to bear the responsibilities of an employer.

Contracts for Service, not Contracts of Employment, are also commonly found in the insurance and financial fields, or in jobs with commission calculated on the basis of the sales volume of goods.

The spokesman stressed that there was a need to distinguish a Contract of Employment from a Contract for Service.

Employers are responsible for the benefits and protection of employees under the Employment Ordinance, including paid leave, statutory holidays, sickness allowance, severance payment and long service payment. The Ordinance also stipulates that employers should pay wages to employees as soon as practicable but in any case not later than seven days after the end of the wage period.

In addition, employers should keep a proper record of the employees' wages and recruitment. If an employee sustains injuries in the course of and arising out of employment, the employer should pay compensation to the employee as stipulated under the Employees' Compensation Ordinance.

Before signing a contract, a contractor should clearly understand the terms and clarify his status, i.e. whether he is the employer or just an agent of the employer. This will help reduce unnecessary disputes in future.

On the other hand, an employee should know who is his employer and, if necessary, requests in writing for a written contract.

For enquiries, employers and employees can visit the branch offices of the Labour Department's Labour Relations Division or call the department's hotline at 2717 1771.

End/Sunday, July 2, 2000

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