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

This is because a clear understanding of the distinction between self-employed persons and employees in respect of their rights and protection entitlement could help avoid any unnecessary disputes, a spokesman for the Labour Department said today (January 28).

On employer-employee relationship, employers have to fulfil different responsibilities under various labour legislation. Under the Employment Ordinance, employers are responsible for the benefits and protection of employees, including paid leave, statutory holidays, sickness allowance, severance payment and long service payment.

In addition, 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.

The Mandatory Provident Fund (MPF) Schemes Ordinance also requires employers to make their MPF contributions from their own funds to the MPF account of their employees.

The spokesman said even if an employer changed the status of an employee into self-employed by simply entering a new contract with the employee, he still has to fulfil his obligations under the various labour legislation if the relationship between the parties remains essentially an employer-employee relationship.

On employee side, the spokesman said employees should be cautious of signing any self-employed contracts with their employers because once they become self-employed, if the change had been not merely in name only but an actual change, they will be deprived of their rights and protection. If in doubt, they are encouraged to approach the Labour Department for assistance.

The spokesman further explained that the key factors in determining employment relationship included the right to control recruitment and work processes, ownership and provision of equipment and materials and other economic considerations, adding that previous court rulings indicated that the courts would not simply look at the labelling of the person to determine the employment relationship.

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.

Meanwhile, the Tripartite Committee in Warehouse and Cargo Transport Industries, set up by the Labour Department to promote communications at the industry level, has drafted a Guide on Contract of Employment and Contract for Service in Cargo Transport Industry with case illustrations. It is expected that the Guide will be published in April this year.

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

End/Sunday, January 28, 2001

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