“its easier to engage them as contractors than to direct employ them as staff”… It’s a common catch cry, but it is not reality. Whatever you have in writing can be overturned by the courts and you can become liable for the tax grossed up on what you have paid them, plus holiday pay etc… which can be an additional 69% over and above what you have already paid. And, to make matters worse, these kind of arguments don’t come to light until they have been with you at least a year!!
The good news is that the courts do look at the whole reality, and the person has to show that they genuinely believed they were an employee.
In a recent case the “alleged employee” was working full time for one company, not GST registered, but providing invoices. When it came down to it, the key piece of information was that the “alleged employee” knew the law which brought her employee/contractor status into question. As such it was ruled that she knew what engagement relationship she had entered into, and therefore was a genuine contractor.
A good rule of thumb is that “if it looks like an employee, quacks like and employee and waddles like an employee, then it probably is an employee”… if you are unsure, or you think that you may be at risk, talk to the person. Check that they understand they are responsible for their own tax, ACC, insurance etc. And if there is doubt, then discuss with them changing their status to employee with a finite change date.
Just don’t forget, as part of your discussions, make sure you remove the costs from their take home pay that you will now have to pay… ACC, Holidays, Sick, Kiwisaver, Stat days.. these all add up to 19%
As a minimum make sure you have an agreement in writing. HRtoolkit has all the right agreements for you to DIY.
Don’t risk $10,000’s out of YOUR OWN pocket