Employment Status

Can a Self-Employed Independent Contractor be deemed as being an Employee?

Many employers underestimate the importance of attributing the correct legal status to individuals who provide services or carry out work for them. Engaging third party self-employed independent contractors is a common occurrence, but there is a lack of awareness of the existence of Maltese legislation which seeks to regulate the determination of the legal status of such contractors, in certain cases elevating their status to that of employees.

A nominally self-employed independent contractor may be legally presumed to be an employee in an employment relationship with his employer if at least five of the following criteria are satisfied in relation to the person performing the work:

1. he depends on one single person for whom the service is provided for at least seventy five per cent of his income over a period of one year;
2. he depends on the person for whom the service is provided to determine what work is to be done and where and how the assigned work is to be carried out;
3. he performs the work using equipment, tools or materials provided by the person for whom the service is provided;
4. he is subject to a working time schedule or minimum work periods established by the person for whom the service is provided;
5. he cannot sub-contract his work to other individuals to substitute himself when carrying out work;
6. he is integrated in the structure of the production process, the work organisation or the company’s or other organization’s hierarchy;
7. the person’s activity is a core element in the organization and pursuit of the objectives of the person for whom the service is provided; and
8. he carries out similar tasks to existing employees, or, in the case when work is outsourced, he performs tasks similar to those formerly undertaken by employees.

Should at least five of the abovementioned criteria, provided for in Subsidiary Legislation 452.108 of the Laws of Malta, be satisfied, the entire employment legislative and regulatory framework – including minimum statutory conditions of employment – would apply to the relevant engagement, such that the contractor providing his work or services would be deemed as being an employee of the person to whom such work or services are provided.

What are the main implications?

If a person was initially considered to be performing services as a self-employed person, and is subsequently found to be an employee on the basis of the above criteria, such person will be considered as an employee of the person for whom he was providing services on an indefinite employment contract and on a full-time basis.

The date of engagement on an indefinite contract would be considered to be the date on which the deemed employee would have commenced the provision of his services, and the seniority and any notice due in case of an eventual redundancy would be computed accordingly.

The employer would also be required to give the employee a letter of engagement or a signed statement setting out the same information and terms as a normal contract of employment would be required to state.

If an employee does not agree with any of the employment conditions set out in such letter of engagement or signed statement, or the amount of wages being proposed by the employer, and leaves the employment, such employee may institute proceedings before the Industrial Tribunal where he may claim unfair dismissal.

Consideration would also need to be given by the employer to fulfil his tax and social security payment obligations, particularly since the employer is liable to pay tax and social security arrears (and interest thereon) relating to any period preceding the confirmation of the relevant employment relationship.

Are there any exemptions?

If an engagement is deemed as giving rise to an employment relationship due to the satisfaction of at least five of the criteria described above, any party to the proposed engagement may, before entering into such a relationship, submit a written request to the Department for Industrial and Employment Relations (or DIER) to exempt such an engagement from being considered to be an employment relationship.

The DIER may issue such exemption if it considers that there are particular grounds relating to that activity to exempt it from this requirement, including that the activity being carried out is an uncommon occurrence or of very short duration.

Any conversion of an employment contract into a contract for service can only have legal effect if it is authorized by the DIER. Until such authorization is obtained and if it is refused once sought, the employment status of the person concerned would be considered to be unchanged and would be the same as that enjoyed prior to the request for authorization.