Employment: Contract and wages

“Contract of employment” vs “contract for service by independent contractor (or self-employed person)”

The Employment Ordinance applies to employers and their employees who are engaged under contracts of employment (with some exceptions), and only those employees are entitled to the rights and benefits that are provided under the Employment Ordinance. To avoid unnecessary disputes, it is important to delineate between the status of an employee and a contractor (or self-employed person) when both parties enter into a service contract.

There is no one single conclusive test to distinguish a contract of employment from a contract for service. Some factors to be considered in identifying a contract of employment are as follows:

  • Who decides on the matters of recruitment and dismissal of workers?
  • Who pays for the workers' wages and in what ways?
  • Who determines the production process, timing and method of production?
  • Who provides the tools and equipment?
  • Who provides the work place and materials?
  • Do the workers carry on business on their own account or carry on the business for their employers?
  • Are the workers involved in any prospect of profit, or are they liable for any risk of loss?
  • How are the worker's earnings calculated and profits derived?

The relevant factors to be considered are determined by the circumstances of each case. For example, workers who bring their own tools and materials for their work are more likely to work under contracts for service by independent contractors. In contrast, those who are fully provided with tools and materials by their bosses are more likely to work under contracts of employment.

The Inland Revenue Department also has a set of criteria for determining whether a service contract is a contract of employment. You may refer to the Labour Department's webpage or the Inland Revenue Department's webpage for more information.