Labour Relations Course – Topics & Obligations

Differentiation between a “Contract of Services” and “Contract for services”

In this report we will talk about Malaysia airlines and the report will include the contract of service which is been offered by the organization, determination of employment relationship and the pecuniary and non-pecuniary terms which are present in the contract.

The name of the company we have chosen is Malaysia Airlines. Malaysia airlines is the Malaysia’s national carrier which is offering the best services to fly around, from and to Malaysia. Malaysia Airlines take 40000 guests on a memorable journey including the country’s diverse richness on daily basis. The company reflects the incredible diversity of the country by capturing its cultures, cuisines, destinations and especially warm hospitality. From September 2005 the company is being owned and operated by Malaysia Airlines Berhad. The company provides superior and best quality travel experience to the guests to more than 1000 destinations in more than 150 countries. The company has an access to more than 650 airport lounges and provides special privileges to the frequent flyers. It is a service organization providing best quality hospitality service to the guests having nearly 12000 employees across 53 cities focusing towards safe, friendly and on time travel. (Malaysia Airlines, 2017; Malaysia Airlines, 2017; Malaysia Airlines, 2017).

In simple words the general difference between a Contract o services and Contract for services is that the latter is a contract between an employee and his employer where as the follower is a contract between a contractor and the client. In both the cases the parties in the contract have specific rights and responsibilities which may differ according to the type on the contract in the place. The contractors are required to be aware of their rights and responsibilities when they enter into a contract either with a limited company or a contractor umbrella company and the agency related or with the end user client as it will have an effect on their IR35 status.

The permanent employees of the company have a contract of service with their employer. In technical terms it can be said that is a worker is in a contract of service with an organization, they are the employee of the company entirely for IR35 purposes. (Contractor Calculator, 2017)

On the other hand, the contract for service is between the contractors and clients/ agency. In precise words, the contract for service is the agreement between the contractor’s company with the client or the agency. It is a strict contract between two firms based on a buyer and supplier basis. Here the agency or the client is the buyer and the company owned by the contractor is the supplier. No question of the employment relationship arises here. Just like the contract of service, the companies of the contractor which enters into the contract with the client have some rights and obligations too (Kala Management Solutions, 2012).

Discussed below are the obligations and the rights of the parties involved in both the contracts which will help us to get a better understanding between the two.

Employee and Contractor Obligations under Contract of Services and Contract for Services

The important rights of the employee status under a contract of service are:

• The worker in the firm is controlled directly by the employer, thus they are liable to perform the job according to the instructions given by a line manager and according to their job description.
• The worker is also expected to work at a specific pre determined place for specific hours on specific days or as mentioned in the contract.
• The employees have statutory rights to basic amenities and in case of emergencies which includes holiday pay, paternity leave, sick pay, paternity rights and also redundancy payments.
• It is essential for the workers to present themselves at the job and they can’t send somebody else in their place for the same purpose.
• The employees are also given statutory rights regarding their choice of leaving the employment and thus ending the contract.
• The employee also enjoys many additional benefits which are directly dependent on the will of the employer. These benefits may include company cars, staff canteens, gyms, health insurance, health clubs and any more.
• When the employee makes a mistake during completing the work for the employer, they can’t alone be held liable for the errors and nor they are expected to make it good in their own personal time.

The key rights that are included in the contract for services are:

• The contractor is required to supply the goods according to the demands of the client or as specified in the contract.
• The contractor is also required to complete the project or any milestones according to the schedule of the contract.
• The contractor is required to provide the services of the standard quality according to the needs of the client or as agreed in the contract.
• The contractor has an obligation to correct any errors in the project development for which he won’t get any additional remuneration.
• The contractor enjoys the right to be paid at the rate as agreed upon in the contract after providing the services to the client according to his/her requirements.
• The contractor also enjoys the right to be paid within 7 days or 30 days or as specified in the terms of the contract.
• If the contractor is unable to complete work, he is liable to provide substitute for the same with no additional remuneration.
• The contractor is also required to follow all the safety and health arrangements on the project site.
• The client is also obliged to provide a healthy and safe working environment for the contractor (Contractor Calculator, 2017).

The employment relationship can be determined by conducting four tests. Employees are required to be aware that the state and local variations of these tests can be applied to different situations of the business. The common theme of these tests is control which can be done in different ways and they all are used to determine how much level of control the employer exerts over its employees. These tests are discussed below in details (Assurance Agency, 2014).

• Common Law Agency Test – In Common Law Agency test 13 factors are considered which are also known as Reid Factors. These factors may not define the character of relationship individually but as a whole they help us to provide with an understanding how much of the control the employer can exert over its employee. Stated below are these factors which are required to be weighted closely to determine the character of relationship. (Youressaywriters.com, 2015; LawTeacher, 2017).
• Actual instruction or direction of worker- Compliance of worker about when, how and where the work will be done.
• Training of the employee as the employer would want the services to be performed in a particular manner.
• Integration of the services offered by employee with organizational goals.
• The services should be rendered personally.
• Hiring and supervising of assistants on same job profile at same pay grade.
• Duration of the relationship
• Hours of work
• Devotion of time to the business
• Place of work i.ee the premises provided by the employer
• Order or sequence of services offered by the employee
• Providing the report to the employer
• Manner of payment made to the employee(Social Security, 2017)

Exceptions to this law are Motive and Natural Love and Affection which does not follow the law and are not material to an employment determination.

• The Economies Realities test- This is the test done to determine the level of financial dependence the worker has on employer. More the level of dependence of the employee on the employer more is the chances that the individual will be categorized as an employee.(USLegal, 2017) Following are the factors which will determine that the individual is considered as an employee under this test:
  • The degree of control exercised by the employer on the individual
  • The extent of the relative investments of the worker and his/her employer.
  • The degree to which the opportunity for profits and losses is determined be the employer.
  • The requirements of the job i.e. skill and initiative.
  • Permanency of the relationship(Government of Oregon, 2017)
• The Hybrid Test- This test combines the element from the common law agency and the economies realities test. This test determines the relationship and the bond between the employer and the employee. In this test factors analyzed re stated below:
  • The kind of occupation and the service offered
  • The skill required in the service provided
  • The length of time the service has been offered
  • The method of payment depending upon the time or the job
  • The manner of termination of the contract that may be done by both the parties or by the single party without any notice.
  • Whether the employer can afford annual leave
  • Whether retirement benefits are given to the employee
  • The intention of the parties entering into the contract.(LexisNexis, 2017)
• The IRS 20-Point Test- This test is done which helps to determine the tax liability of the employees and the employees. This is the expansion of the common law test and it summarizes its factors into three different categories which are: Behavioral control, financial control and the type of relationship that exists between the parties. Stated below are some factors of the IRS 20-Pont Test which will help the reader to develop an better understanding:
  • Intent of the company and of the worker
  • Pay basis which is described in the contract
  • Additional benefits provided to the employee by the employer
  • Importance of service rendered by the employee
  • Performance of the service assessed on personal basis
  • Ongoing relationship need not to be maintained on daily basis
  • The sequence of the work done
  • The reasonable basis test which helps to classify the workers in the company in present or in the past(Government of Oregon, 2017).

In Malaysian Airlines, these tests have been conducted and have shown positive results. The tests have been conducted based on and fulfilling each and every constraint of the tests as discussed above. So it can be said that the company maintains a healthy relationship with its employees

Employment Act 1955 provides some of the minimum rights which the employer must give to the employee. Section 7 will be applied if in case the provisions of the employment contract are les that the provided terms of AK 1955. Pecuniary terms are one of the real terms in contract which are considered as the terms of financial affairs. The pecuniary term includes the wages, bonuses, salaries, allowances, benefits pecuniary and ex-gratia payments. There will be a clear statement of the terms related to wages and allowance in the contract of service. Pecuniary benefits will consist of other significant benefits such as retirement or removal benefits, retirement, maternity benefits, insurance and medical benefits, termination of benefits, termination benefits related to mass employment layoffs, and resignation benefits. Below are the two pecuniary terms in the contract of service of Malaysia airlines on the compliance of the Employment Act 1955 (Merriam-Webster, 2017; Legal Dictionary, 2017; USLegal, 2017).

In the section 24(1) AK 1955, it is clearly stated that the employers are not allowed to deduct the salaries of the employees by any means, except for those which are being provided by the Act itself. Section 24(1) clearly says that the employers cannot make any deductions in the employee’s salary except which has been provided by the employment act. In accordance with the act under section 24(2), following are the conditions of salary deductions-

1. Under section 13(1), deductions regarding indemnity which has to be paid by the employee to the employer.
2. The deductions which are being allowed by the law to another.
3. Deductions can be made from the salary up to the extent that the payments are made for errors employer within three months earlier.
4. Deductions can be made regarding recovery of salary advances of wages which are being made with no interest charge under section 22.

Following are the deductions that are being listed in the Section 24(3) which are to be made with employee’s prior written request (Victorian WorkCover Authority, 2017; The Commissioner of Law Revision, 2017)-

1. Deduction regarding any payment to be made for shares offered to the employee in the business of employer.
2. Deductions regarding salary payments for any fee, installment, debt or fardah to a registered trade union, society and loan association.

Following are the deductions that are being stipulated under section 24(4) says that their deductions that cannot be made only with the written request of the employee but also with the director general’s written permission together-

1. Deductions regarding the goods business of the employer.
2. Deductions regarding pensions, employee welfare schemes, payments for employment benefits, provident funds and insurance schemes.
3. Deductions regarding payment to third party on behalf on an employee.
4. Deductions regarding rental payments, accommodations costs, food or drinks which are being provided by the employer to the employee as per the request of the employee or according to the term of service.
5. Deduction regarding repayment of wages advances bearing interest under section 22.

Further it has been provided that the deductions will not be more than 50 % of the earning which are being earned by the employees during the month.

Tests to determine an Employment Relationship

In accordance with the Act’s provisions, Malaysia airlines deduct the salaries of their employees to Employee Provident Fund (EPF) for ensuring the future of the employees as per the set rate. No significant deductions are made by the employers as the company does not provide specific salary slips. Employees receive a total of their salary after deducting EPF.

No provisions are specifically written in the contract of employment regarding the employee’s bonuses. Employers are having the right on employee’s bonuses. Oxford dictionary says, Bonus is certainly defined as the reward which has been given to the employee other than salary. It is not the duty of the employers to provide bonus but it can be treated as an incentive for the services rendered by the employees. There is a type of bonus which is contractual bonus and it is mandatory as mentioned in the contract. It is the compulsory payment other than salary to be made to the employee as it has been clearly specified in the service contract. Amount, time and manner of the payment have been already specified in the agreement. Contractual bonus has to be paid compulsorily irrespective of any profits or loss. The amount of bonus should be modified from time to time as it largely depends on the economic situation which is brilliant at time or may be satisfactory.

Malaysia Airlines give bonus to its employees but the amount largely depends on the profit share of the company. Amount will be increased or decreased depending on the figures of profit or losses. These bonuses are given at the end of the year and may prove to be useful as it leads to improvement in the performance of the employees in order to work better than before.

The matter which are covered under the terms which are not pecuniary are period of work, days of rest, other benefits, overtime and public holidays, annual and sick leave. Part XII of the Employment Act, 1955 provides the law of period of work, annual, sick and, maternity leave and public holidays. Below are the two non-pecuniary terms in the contract of service of Malaysia airlines on the compliance of the Employment Act 1955.

Maximum period of work has been set up for an employee by the Employment act, 1955. Section 60(A) provides-

• More than 8 hours per day.
• More than 10 hours per day.
• More than five hours consecutively without a break, this should not be more than 30 minutes duration.
• More than 48 hours a week.

Some employer may want employees to work for eight hours consecutively which require rest period for at least 45 minutes so that the employees have time to eat. But for this too there should be a prior agreement regarding this provision between the employer and employee. No employees can be compelled to work more than the provided time in the contract per day or per week. When the employees are directed towards working more than the specified hours in question it will be considered as “overtime”. Overtime is the time when the work is being done in excess of normal working hours of employees and should be paid at least 1 ½ times rate per hour.

Base on the above stated provision, Malaysia Airlines has set working hours for its employees but there is not fixed timings as it totally depends on the flights they are being scheduled to fly. Employees are given proper time of one hour with the purpose of lunch break. There are proper working hours and every flight is being scheduled accordingly so that the employees can rest and next shift of employees take up the duty of the previous ones. In case of a flight halt, crew gets changes after the halt. The working hours are limited to 8-9 hours a day as proper working hours will not burden the employees and the performance of the employees will not get affected.

Topics covered in the Labour Relations Course

Part XII of the Employment Act, 1955 contains the provision regarding the rest days of an employee. Section (59) says that each employee will be given one full day rest per week as prescribed by the employer. The employee who are not having their regular rest days, the employer is responsible to provide a schedule guiding the employees about when their rest days are allowing the employee to chose whether they work or not. Any employer who is violating this provision will be found guilty for an offense under the Employment Act (section 59(4)). Further section 60(3) (a) provides that in case employee is required to work on the rest days should be paid according to their daily wage and shall be paid for any period of work out of either not more than half of the normal working hours or more than half but should not exceed the normal working time.

In accordance with the act, Malaysia Airlines has set one rest day for employee because one single day cannot be fixed as the airlines service is not an ordinary business organization and need to function all day and night. So the rest days are different for employees. On that day the employee will not coming to the premises and can enjoy the full day. There is no overtime and working on rest days in the company as the company understands the importance of their employees and need them to have proper rest and come again with positive energies. With this the employees will feel relaxed and distressed and can store their energy after such consecutive six working days. Also it provides opportunities to employees to spend some time with their families.

In this report we have included the relations of the employer and re employee. The report presented on Malaysian Airlines discusses about the difference between the Contract of Service and the contract for services. Apart from that we have analyzed four employment relations tests and analyzed if they are being conducted in the company in order to improve the employer and employee relations.

The report also talks about the pecuniary and non pecuniary terms of contract provided by the Malaysia airlines. Pecuniary terms are the terms of financial affairs and it is one of the rights that must be given to the employee by the employer. The two pecuniary terms in the service contract of Malaysia Airlines are payroll deductions and bonus. Payroll deductions state that employers cannot deduct the salary of an employee except the ones provided in the contract. In this respect Malaysia airlines deduct its employee’s salary to EPF in order to ensure their future according to the set rate. There are no provisions for bonus in the employment contract as they are the incentive for employee’s hardwork depending upon the performance of the employee and the profit shares of the company. The company provides bonuses to its employees but the amount keeps on changing as it depends largely on the profit shares of the company.

There are some non-pecuniary terms which are also present in the contract. Period of work, days of rest, overtime, public holidays, sick, annual and maternity leave are some of the non pecuniary terms of the contract. Two non pecuniary terms present in the employment contract are duration of work and days of rest. Malaysia airlines has set 8-9 hours as their working hours and no employee will be asked for overtime or any other services. The company has set one full rest day in a week for employees but the days are different for the employees as it is a service organization and need to be operated day and night.

References

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Youressaywriters.com. (2015, March). The common law tests used to determine employee status are not able to deal with the varietyof types of employment relationship in the modern labour market. There is an urgent need for radical reform of the law in this area.’Critically evaluate this state. Retrieved 2017, from https://www.youressaywriters.com/wp-content/uploads/2015/03/Undergraduate_Essay_Employment_Law.pdf