There are many great reasons for employing contractors in small businesses. As an employer however, you need to be aware that independent contractors may be considered employees in the eyes of the law.
If one of your team-members is employed as an independent contractor, but fits the description of a permanent employee, they are entitled to extra benefits including holiday pay and Kiwi Saver over and above their hourly or daily rate.
You can protect yourself and your business by answering the following key questions, and addressing any issues that may arise:
Does your team-member work regular hours and are they able to be flexible with their working hours?
Yes. They are likely to be a contractor
No. Your team member may legally be considered an employee
Is your team-member able to work for other people?
Yes. They are likely to be a contractor
No. Your team member may legally be considered an employee
Do they earn less than 80% of their income from working for your organisation?
Yes. They are likely to be a contractor
No. Your team member may legally be considered an employee
If your team-member can’t work, are they able to contract a third-party to work on their behalf?
Yes. They are likely to be a contractor
No. Your team member may legally be considered an employee
Can you discipline or terminate their contract if your team-member’s work isn’t of a high-enough standard?
Terminate. They are likely to be a contractor
Discipine. Your team-member may legally be considered an employee
How long has your team-member been working for you?
As a rule of thumb, if you anticipate that they will be working for you for more than 12 months (particularly if they are working full-time), then it may be worth considering an alternative arrangement.
Is your team-member set up to take advantage of being a contractor? Are they registered for GST, or claiming home-office expenses?
There is a risk that Inland Revenue (IRD) may bring a claim against you if your team-member fails to pay their tax. If your team-member is claiming the advantages of being a contractor, they would be hard-pushed to argue that they did not understand tax law.
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