Many business owners / organizations / directors mistakenly presume that if they sign a contract with another person by which he/she would provide services to them as a supplier/self-employed, it would deny future claim of the existence of employer-employee relationship between them. Moreover, they think that if this is specifically mentioned in the contract between them, it would definitely prevent such claim and its acceptance by Judicial authorities.

This is a common wrong assumption, that might cost a lot of money to the commissioning party who actually hired someone is disguise of customer-supplier contract.

The court of law in Israel, determined several tests to examine if such relationship actually occurred and if in fact these tests prove that there was an employer-employee relationship and not a customer-supplier relationship, the “supplier”-employee would be entitled to all social benefits that were spared is such case.

These tests are:

Integration – this test is the most important one and it has 2 criteria’s:

1. The positive – checks the integration of the employee in the organization itself; Was his activity vital to the organization or complementary; was he subject to the rules and standards of the organization etc.
2. The negative – checks if the presumed employee has other separate business activity, customers, independent costs etc.

Personal relationship – this test checks if the work had to be done by the person himself or by another person on his behalf. And also, who is responsible to find a substitute is such case – the operating party, or the commissioning party.

Supervision – in employer-employee relationship the supervision would be much stricter and with less flexibility.

Work hours – employer-employee relationship would have a very clear and repetitive work hours frame.

Place of work – checks where was the work done physically – at the employer’s place or elsewhere.

Tools and equipment – in employer-employee relationship the employer would supply all working instruments and tools, whereas the supplier/self-employed would take care of it by himself.

Terms of contract – usually this would not determine the nature of the relationship between 2 parties, but it’s a complementary test as well.

Way of payment and type of establishment – the way the customer paid the supplier (per project-work or per period (monthly payment as a salary etc.)) and the way the operating side is established at the tax authorities i.e if invoices and receipts are issued – wouldn’t deny the option of employer-employee relationship but it would have an effect of such determination.

Scope of work – the longer the operating party provides services-work to the customer the stronger is the claim of actual employer-employee relationship exists.

When signing a contact with a supplier one must take the above test into account.