Tutbury Associates LtdTutbury Associates Ltd

by Kelly Tutbury

There are a lot of business owners that are unsure whether they should hire employees or a contractor. Below we’ve tried to simplify the difference between the two.

So what defines a contractor? And how is this different to an employee?

The basics are:

What is an independent contractor?

Independent contractors are self-employed people who control what work they do and how it’s done and are responsible for their own tax payments.

  • They decide how they do the work
    –       When they take their holidays
    –       When, where and what hours they work
    –       How much they get paid and how
  • They are responsible for:
    –       GST returns and payment if applicable
    –       Terminal and Provisional Tax and filing their own tax returns, ACC and Professional Indemnity Insurance
  • They are responsible for getting the work done
    –       Can get other people to fill in for them. Potentially without permission.
    –       Pay those people from their own funds
    –       Are free to work for other people
    –       Advertise their own business
    –       If they can’t do the job (e.g. sick) then they can organise a replacement
    –       Must correct unsatisfactory work in their own time at their own expense.

How is this different to an employee?

An employee:

–       Does the work themselves
–       Can be told at any time what to do on the job, or when and how to do it
–       Is paid at a set rate (for example, hourly weekly, monthly)
–       Can get overtime pay
–       Works set hours, or a given number of hours a week or month
–       Has someone else who sets the standards for the amount and quality of their sales or output
–       Works at the premises of the employer they are working for, or somewhere that employer decides
–       Does the same sort of job as other people who are treated as employees
–       Is under an employment contract, or any law that says how their relationship with their “employer” should be run
–       Is prevented from doing work for anyone else
–       Has to follow the rules or procedures of the employer they are working for.

However there is nothing totally black and white and the lines can be blurred between employee and contractor.

Inland Revenue publishes guidelines in this area so have a look at www.ird.govt.nz or feel free to contact the office www.tutburyassociates.co.nz/contact

Your responsibility when using contractors

Your self-employed contractors are responsible for their own tax so you don’t usually have to worry about PAYE and other deductions.

However, in some circumstances you are required to deduct ‘tax on schedular payments’ from payments to contractors and pay these amounts to

Inland Revenue unless they hold a Certificate of Exemption.

Self-employed contractors are not covered by the Employment Relations Act (2000) or the Holidays Act (2003), which deals with annual leave,

public holidays, sick leave or bereavement leave.

They are however protected by the terms of their signed contract – meaning you can still be legally liable if you break the terms of any of the contracts signed.

The above is a brief rundown on the differences. If you want to find out what category you fall into or what the advantages/disadvantages are more in detail.

Please contact us  www.tutburyassociates.co.nz/contact

 

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Employee V Contractor. Whats the difference?