Contract of Service VS Contract for Service: What’s The Difference Between These Two “Employment” Relationships?

Contract of Service VS Contract for Service

It’s often said that a business is nothing without its people. However, the people who support businesses to grow may or may not be employees of the company. In this regard, both businesses and their people need to know if they are entering (or should enter) into a Contract of Service or a Contract for Service.

This is why it is important for businesses (and employees) to understand the type of contract that they are entering into. This is especially for freelancers and self-employed individuals, as the distinction is less clear between working with an employer compared to working with a client. Conversely, for larger outfits, it will be quite clear that they are entering into a B2B contract with another business.

What Is A Contract of Service?

Defined by the Ministry of Manpower (MOM), a Contract of Service is an agreement between an employer and an employee. It defines the terms and conditions of employment and must include the Key Employment Terms (KETs) and essential clauses such as hours of work and job scope.

In Singapore, most working adults are employees, and thus, working under a Contract of Service. Majority of employees in Singapore are also covered under the Employment Act, and provided statutory benefits. 

Read Also: Singapore Employment Act: 10 Statutory Requirements To Pay Employees

What Is A Contract for Service?

Those who sign a Contract for Service are not employees. They are usually freelancers or vendors who agree to complete an assignment or project for a fee. The Labour Force in Singapore 2020 report highlighted that the number of self-employed persons in Singapore grew in 2020 to 14.7% of the overall employed residents in Singapore.

The Employment Act does not protect such individuals. This is a big consideration as such individuals do not get statutory benefits such as annual leaves, maternity/paternity leaves, public holidays and medical leaves. 

However, MOM encourages businesses and self-employed persons to use the KETs template for self-employed persons as a guide. This way, both businesses and self-employed persons understand their working relationship, as well as adopt the Tripartite Standard on Contracting with Self-Employed Persons.

Read Also: Why 2021 Could Be A Good Year For Freelancers & Gig Economy Workers To Consider A Full-Time Job

Main Differences Between Contract of Service VS Contract for Service

MOM explicitly states on its website that “there is, however, no single conclusive test to distinguish a contract of employment from a contract for services”. 

Especially in the new economy and platform businesses, it can be challenging to define whether an individual is an employee or a self-employed person. For instance, in February 2021, the UK Supreme Court ruled that Uber drivers are workers and not self-employed. Meanwhile, another court ruling in the UK on 24 June 2021 confirmed that riders for Deliveroo were self-employed.

Read Also: Lessons from the UK Supreme Court – Uber Drivers are Employees/Workers: Patrick Tay

To make it clearer, MOM provides some main differentiating factors between the two types of contracts.

Contract of ServiceContract for Service
Has employer-employee relationshipHas client-contractor type of relationship
Employee does business for the employerContractor does business for their own account
May be covered by the Employment ActNot covered by the Employment Act
Includes terms of employment such as working hours, leave benefits, etc.Statutory benefits  do not apply

Furthermore, MOM provides a set of questions (factors) to be considered when determining if someone is or should be under a Contract of Service VS Contract for Service.

#1 Control

  • Who decides on the recruitment and dismissal of employees?
  • Who pays for the employee’s wages and in what ways?
  • Who determines the production process, timing and method of production?
  • Who is responsible for the provision of work?

#2 Ownership of factors production

  • Who provides the tools and equipment?
  • Who provides the working place and materials?

#3 Economic considerations

  • Is the business carried out on the person’s own account or is it for the employer?
  • Can the person share in profit or be liable to any risk of loss?
  • How are earnings calculated and profits derived?

For example, if the business is responsible for setting working hours, determining salary and when it is paid, providing workplace and equipment, then it is likely to have an employer-employee relationship with the individual under a Contract of Service.

However, if the individual is responsible for setting the price and working hours, procuring the equipment to do their work etc, they may be working under a Contract for Service.

Terminating Contract of Service

In Singapore, the Employment Act also governs the way employer-employee types of relationships should be terminated. There is a minimum notice period under the Employment Act, however, individual employment contracts can have longer notice periods.

The compensation that employers and employees are entitled to is also clearly defined in the Employment Act. For example, employees are entitled to their pay and CPF contributions while serving out their notice period.

For any salary-related or employment disputes, the Tripartite Alliance for Dispute Management (TADM) provides employees and employers with services that both parties can turn to. 

Read Also: Managing Notice Period: Understanding Employee Entitlements When They Are Leaving Your Business

Terminating Contract for Service

Obviously, grounds for terminating a Contract for Service is not covered under the Employment Act. Self-employed persons must work in safeguards for themselves in the event that a business wants to terminate their contract.

They can do this by requesting advance payments as well as regular payments when they complete certain milestones in their work or withholding rights of use until payment is made. This should be clearly stated in contracts that they sign with businesses that they work with. To enforce such clauses, self-employed persons and freelancers may have to turn to the legal system rather than rely on MOM.

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