2. Re-Characterisation of Independent Contractors as Employees
a. Laws and Guiding Principles
As described above, there are no specific regulations distinguishing “independent contractors” from “employees”. Instead, re-characterization of independent contractors as employees depends on several criteria which have been formulated in the national regulations and developed by local courts for confirmation of employment relationships. The principle is, if a person is deemed to have established an employment relationship with the employer, he/she would be protected by labor laws as an employee; otherwise if he/she is deemed to only have a service relationship with the company, he/she will not be under the protection of labor laws.
b. The Legal Consequences of a Re-Characterisation
If an independent contractor is re-characterized as an employee, he/she would be under the protection of labor laws, and the hirer shall bear employer liabilities and obligations including but not limited to the following:
- entering into a written employment contract with the employee;
- providing the employee with salary le less than the minimum wage standard, granting the employee's right to have breaks and holydays, and observing the regulations on working hours;
- providing the employee with labor conditions and protections as required by labor laws;
- making social insurance and housing reserve fund contributions fot ehe employee;
- providing the employee with benefits no less than the minimum mandatory level, such as paid annual leave, marriage leave, maternity leave, paternity leave, work-related injury leave and sick leave;
- observing the statutory conditions for termination of the employment contract with the employee; and
- providing the employee with severance payment no less than the mandatory level in accordance with law for the termination of the employee;
In particular, if an independent contractor is re-characterized as an employee, and suffers from work-related injury and is identified as having disability while the employer does not contribute to his/her work-related injury insurance, the employer shall be liable for the work-related injury, and bear the cost in accordance with the items and standards of work-related injury insurance benefits, such as the medical cost, life care fees, a lump-sum disability assistance allowance, and a lump-sum medical treatment allowance that should have been covered by the work-related injury insurance.
c. Judicial Remedies Available to Persons Seeking ‘Employee’ Status
In practice, “nominal independent contractors” usually seek the legal status of employees in order to get special protection for employees, such as for the identification of work-related injuries and obtaining relevant compensation, contribution for social insurances and housing reserve fund, and protection from termination. They may file labor arbitration for confirmation of an employment relationship with the employer. When there are sufficient elements that are compatible with the chosen qualification of the employment contract, the contract for service will be re-characterized as an employment contract and the individual concerned will be deemed as an employee. If the labor arbitration fails, the person may bring a lawsuit to the court and then may appeal when dissatisfying with the first-instance judgment.
d. Legal or Administrative Penalties or Damages for the Employers in the Event of Re-Characterisation
In the event of re-characterization, upon the employee’s report to the labor administrative department, the employer would be possibly ordered to pay the employee salary no less than the minimum wage standard, and also pay overtime payment when applicable. The employer would also possibly need to pay double wage to the employee for not entering into a written employment contract with the employee.
In addition, the employer would be liable for the unpaid social insurance funds as well as late payment interests. If the employer fails to make a payment of the employee’s social insurance within the period specified by the local labor administrative department, it would be subject to a fine of 1 to 3 times the amount in arrears. Especially, if the employee suffers from a work-related injury, the employer would be liable for the benefits and expenses under a work-related injury insurance.