So you have worked very hard and nurtured your business carefully and finally you have got to the next big step of taking on someone to help you. This is another steep learning curve for the uninitiated. This next step can assist your business to soar or to crumble.
In New Zealand employment law is not easy to navigate your way around. Make sure you stop and carefully prepare yourself before making a knee jerk decision of offering a person a role within your precious business.
For example, do you want an independent contractor or an employee? If you engage an independent contractor you do not have obligations such as ACC levies, annual holiday pay, and extra obligations if your team work on public holidays, sick leave, bereavement leave etc. Further, you will not have problems with the person taking a personal grievance against your business, if you terminate the arrangement for any reason.
However, like all things in business, it is not quite so straight forward. If you engage independent contractors (“ICs”) to undertake work for your business, you need to make sure you have the correct documents in place and that you treat your ICs in a certain way. If you do not do this, your ICs may be deemed to be employees by the IRD or the
Employment Relations Authority. If this happens the consequences can be severe. For example your business may be deemed to be liable for backdated PAYE, ACC levies, holiday pay, payment for public holidays, sick leave, bereavement leave, etc. In some situations the amount of money involved can be significant and can be large enough to cripple a business for years.
Another issue with ICs is that there is a limit in the type of direction you may be able to give them and how much control you have over them. While this may suit some businesses, it may not suit others.
Below I have set out a checklist for you to consider to check whether you need an IC or an employee.
| CONTRACT OF SERVICE (EMPLOYEE) | CONTRACT FOR SERVICES (CONTRACTOR) |
| The parties state their relationship to be a contract of service | The parties agree their relationship to be a contract for service |
| The employer determines “how” the work is to be carried out | The contractor determines “how” the work shall be carried out |
| The employee must carry out the work personally; he / she may not delegate or subcontract it | The contract may arrange for another person to carry out the work by subcontract or otherwise |
| The employee carries out the work exclusively for the one employer | The contractor can or does carry out work for more than one business |
| The employee, whether skilled or otherwise, is an integrated part of the employer’s normal business activity | The contractor’s work is often specialized and is not part of the business’ activity
|
| Payment is by wages or salary paid on a weekly, fortnightly or monthly basis | Payment is by lump sum or by invoices presented at intervals |
| The rate of pay is typical for an employee of that type | The rate of payment reflects charge out rates for contractors |
| The employer pays the ACC levies in respect of the employee for work related accidents | The contractor pays his / her own ACC levy |
| The employer deducts PAYE from the employee’s earnings | The contractor has responsibility for his / her own income tax liability |
| The employer provides tools and equipment or provides monetary compensation | The contractor provides tools and equipment necessary the performance of the contract |
| The employer specifies hours of work | The contractor has freedom to organise the performance of the contract |
| Time off for holidays or sickness are paid | Contractor is not paid for time away (such as sickness or holidays) |
This article is intended as a point of reference and should not be relied on as a substitute for professional advice. Specialist advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this article.