a. Factors that Determine Who is an Employee and Who is an Independent Contractor
The difference between an employee and an independent contractor in Norway is based on whether or not the person performing a work task is determined to be an “employee” according the 2005 Norwegian Working Environment Act (“Arbeidsmiljøloven”). Similar definitions are relevant for tax treatment and benefit entitlements.
The notion of “employee” is a discretionary term. The meaning of this term is determined by case law. Based on this case law, the distinction between an “Employee” and an “Independent Contractor” is made by the questions of:
• Which party is responsible for the result of the work that is performed?
– The most important rule is that the independent contractor bears the risk of delivering a specific result, whether this is to deliver a finished project or build a house. The “employee” however, is responsible for performing his work tasks as best as he can from day-to-day, leaving the responsibilities for the result to his employer.
• Is the person performing the work tasks obligated to follow the other party’s day-to-day instructions, or can he decide for himself how to receive the result he is supposed to deliver?
– If the person performing the work tasks is obligated to follow the other party’s day-to-day instruc,ons, he is most likely seen as an “employee”.
• Is the person performing the work obligated to perform the work personally, or can he use another person to perform the duties to fulfill his obligation?
– If the person performing the work tasks is obligated to perform the work personally, this is seen as a sign that he is an “Employee”. If he can use another person to deliver his result, he is more likely an independent contractor.
• Which party is responsible for the work tools and assets that are necessary to perform the work?
– If the person performing the work tasks holds his own work tools, he is more likely an independent contractor than if he uses the other party’s tools and assets. In many cases, however, this can be different due to the character of the services delivered.
• Is the person performing the work tasks only working for one principal, or does he have several customers?
– If the person performing the work tasks en,tled to have many customers and actually able to do it, he is more likely an independent contractor than a person who is obligated to only work for one customer.
b. General Differences in Tax Treatment
The Employer must pay the Social Contribution Tax, calculated on the salary, which the employee is paid. Furthermore, the employee shall pay income tax.
The independent contractor, however, is obligated to pay taxes and VAT himself.
c. Differences in Benefit Entitlement
An employee is entitled to holiday pay from the employer, while the independent contractor is not. In addition, an employee is entitled to official sick pay and earns official pension benefits through the Social Benefits Act. Employers are also obligated to establish a private collective pension scheme for all employees.
The contractor has to pay or cover these kinds of benefits himself.
d. Differences in Protection from Termination
Independent contractors are not protected from termination at all – their rights related to termination are solely based on the wording of the contract. Employees in Norway are, however, protected from unfair dismissal by the 2005 Working Environment Act. The validity of these contracts and termination of such contracts are regulated by the 1918 Contracts Act and general Civil law.
According to the 2005 Working Environment Act section 15-7, an employee may not be dismissed unless this is objectively justified on the basis of circumstances relating to the enterprise (redundancies).
One typical example of circumstances connected with the enterprise is rationalisation measures. Dismissal due to these circumstances is, however, not objectively justified if the employer has other suitable work to offer the employee in the enterprise. Further, when deciding if a dismissal on these grounds is warranted, the needs of the enterprise shall be weighed against the inconveniences a dismissal will involve for the individual employee.
Each employee must be evaluated individually. This implies that there can be just cause for notice in relation to one employee, but not in relation to another employee.
Further to the Norwegian court practice the relevant selection criteria include:
- competence (e.g. education and work experience, quality of performance);
- personal suitability (e.g. leadership abilities, cooperation);
- social aspects (e.g. family responsibilities/financial situation, health, age, opportunities in the job market).
For a dismissal to be “fair” grounded on non-performance from the employee, an employer must be able:
- to prove that the employee was very well aware of what kind of performance was required from him, including his work tasks and other kinds of obligations;
- to prove that the employee did not perform in accordance with the employer’s requirements;
- to prove that the employee was informed regarding his discrepancies and was given a chance or to improve his performance but did not do so.
Based on these guidelines, every case has to be considered individually.
e. Local Limitations on Use of Independent Contractors
There are no limitations.
f. Other Ramifications of Classification
The Working Environment Act regulates maximum working hours for employees on a daily, weekly or yearly basis. The Norwegian Labour Inspection Authority enforces the provisions, and if they are found to be breached, the undertaking may be fined. However, these provisions do not apply for independent contractors.
In accordance with the Working Environment Act chapter 10, working hours is the time, during which the employee is at the disposal of the employer, while off-duty time is the time, during which the employee is not at the employer’s disposal. Pursuant to section 10-2 (1), working hours shall be arranged in such a way that employees are not exposed to adverse physical or mental strain, and that they shall be able to observe safety considerations.
Normal working hours must not exceed 9 hours per 24 hours and 40 hours per 7 days, cf. section 10-4 (1) and pursuant to section 10-11 (1) such hours shall shall normally be scheduled between 6 a.m. and 9 p.m. Work lasting more than 5 ½ hours a day shall be interrupted by at least one break. The break shall be at least one hour if the working hours are at least 8 hours per day.
Furthermore, working hours must be arranged so that the employee has at least 11 hours continous off-duty time per 24 hours (daily off-duty time), which shall be placed between two main work periods. Furthermore, the employee is entitled to a continous off-duty period of at least 35 hours per 7 days (weekly off-duty time). Night work and work on Sundays may only be imposed as far as prescribed by law, cf. sections 10-10 and 10-11.
Work in excess of what the Working Environment Act precsribes as normal working hours, are regarded as overtime work, cf. section 10-6 (2). Overtime work must not take place except in cases when there is a specific and time-limited need for it, and must not exceed 10 hours per 7 days, 25 hours per 4 consecutive weeks or 200 hours during a period of 52 weeks. For overtime, work a supplement of at least 40 per cent shall be paid, in addition to the pay received by the employee for corresponding work during normal working hours, cf. section 10-6 (11).
g. Leased or Seconded Employees
The other typical mechanism in Norway is the use of temporary work agencies, with the main purpose of hiring out their employees to other companies hiring an extra workforce without having to employ them. The “hiring out” is defined as situations where:
“the employees of the provider of labour are placed at the disposal of the principle (the requisitioner of labour) and are subject to the principle’s management and in-structions. The requisitioner also has the financial risk for the result of the work. The employees hired on are employed by the provider. The provider is responsible for payment of salary, etc. and is responsible for ensuring that the employees hired on possess the qualifications assumed for the assignment.”
The Supreme Court ruled in June 2013 regarding the difference between a subcontractor company and a company hiring out their employees:
The case was filed by an employee employed by a subcontractor / temporary agen-cy, who had handled one of the oil company Statoil’s internal post offices for many years. This employee had been working at this internal post office as an employee of the subcontractor / temporary agency and not by Statoil. As Norwegian law provides that an employee hired out from a temporary agency for more than 4 years is entitled to employment from the requisitioner of labor, he filed a court case claiming that the contractual relationship between Statoil and his employer was a hiring contract and not a subcontracting agreement. Consequently, he claimed permanent employment with Statoil.
Due to the same points as stated under section I a) above, the contract was ruled as a subcontract and not a hiring from a temporary agency. The most important point was that the employees employer was responsible for delivering a finished result to Statoil, a post office, and not only responsible for delivering a group of employees.
This group of hired out employees are covered by the Temporary Agency Work Directive, and are entitled to primarily the same salary and working conditions as if they were employed directly with the company hiring them in.
It is important to note that hiring of labour from temporary-work agencies is only lawful in cases where temporary employment is permitted. Hiring of labour may therefore be an alternative to temporary employment in connection with unforeseen peaks and seasonal fluctuations.
h. Regulations of the Different Categories of Contracts
In Norway, the different groups of contracts are defined by mandatory legislation in regards to employment law, tax law and social benefits law. If an individual is not considered an “Employee”, the relation is regulated by the general civil law. Consequently,
there are very few case related to these issues.