EMPLOYEE vs CONSULTANT

There are various categories of people who work in an organisation including employees and consultants. This article will look to distinguish between an employee and a consultant and the rights accruing to each.

Section 2 of the Employment Act defines an employee as “ a person employed for wages or a salary and includes an apprentice and indentured learner”. However, the Act does not define who a consultant is. 

The Black’s Law Dictionary 2nd Edition defines a consultant as “A professional that has expertise requested for a fee.”

Some of the key differences between an employee and a consultant include:

1. NATURE AND TERM OF SERVICE

The services of an employee are employed by an employer to meet the goals of the organisation and the terms of their service are predetermined in an employment agreement.  In most cases, a consultant is employed to address a specific gap issue because of their relevant skills, expertise and experience.

1. CONTROL

This is the key distinguishing factor. An employer has complete control over the work of an employee including the place of work, hours of work, and the exact manner in which the employee performs tasks assigned to him/her. On the other hand, a consultant works under minimal supervision and determines his/her place of work, the hours of work, and how the work is to be performed based on their relevant expertise as long as they meet their deliverables.

1. BENEFITS AND STATUTORY DEDUCTIONS.

Under the Employment Act, an employer is obligated to deduct and make statutory payments on behalf of an employee for NHIF and NSSF.  Depending on the organization, an employee may be entitled to other benefits such as allowances, insurance covers and pension schemes. On the other hand, a consultant is not entitled to such benefits including statutory deductions. 

1. LIABILITY FOR WRONGFUL ACTS.

An employer is liable for the wrongful acts of his employee if the acts are committed in the course of employment. However, the employer shall not be liable if the employee acts outside the scope of his/her instructions or commits a criminal offence in the cause of employment. On the other hand, a person who hires a consultant is not liable for the negligence and other wrongful acts committed by the consultant. 

1. PAYMENT OF REMUNERATION

An employee is paid a specific amount in regular intervals as per the employment contract. Such payments are determined by The Minimum Wage Act which governs the minimum wage that an employee in various sectors and professions should be paid. Currently, the minimum wage for unskilled workers is 13,572 KES while the minimum wage for skilled workers is 15,287 KES. The terms of payment when it comes to consultants are dependent on the contract agreed upon by the Parties.  In most cases, a consultant is paid after they raise an invoice for the service provided. An employee is paid a salary while a consultant is paid fees.

1. TERMINATION.

In the termination of an employee, the employer is required to follow due process as required under the Employment and Labour Act 2017. On the other hand, a consultant may be terminated simply by issuing a termination notice as per the terms of the contract.

1. TAXATION

An employer is obligated to deduct and remit PAYE from an employee’s salary.  In the case of consultants, the tax applicable is Withholding Tax at the rate of 5%.

1. GOVERNING LAW

Employment relationships in Kenya are governed by the Employment Act, Labour Institution Act, Labour Relations Act, Occupational Safety and Health Act and Work Injury Benefits Act while the relationship between an employer and consultant is governed by the law of contracts. Further, any dispute arising between an employer-employee is specifically handled by the Employment and Labour Relations Court unlike disputes arising from consultancies.

1. LEAVE

An employee is entitled to annual leave for 21 days with full pay, maternity leave for 3- months with full pay, paternity leave for 2 weeks with full pay and sick leave as provided for under Section 28 of the Employment Act. 

IN CONCLUSION.

The courts have defined who an employee and a consultant is in various cases. In the case of Everett Aviation Limited v Kenya Revenue Authority (Through The Commissioner of Domestic Taxes) [2013] eKLR  the court stated that:

“There are also various tests to be employed when there is doubt whether a person is an employee. One of those tests is whether the person’s duties are an integral part of the employer’s business. The greater the direct control of the employee by the employer, the stronger the ground for holding it to be a contract of service as opposed to a consultancy agreement.

It is therefore important for employers to understand the distinction between an employee and a consultant, how each relationship is managed, and ensure that the agreements are well drafted to avoid any future liabilities.

If you have any questions, please feel free to contact us through any of the contact details provided on our website or book a consultation with any of our associates for this or any other related legal matters.

Disclaimer

This article is for informational purposes only and should not be construed as legal advice.