Focus on contractors

Hiring a self-employed contractor can be a great way to kick start a project or new service – especially if you need a short-term resource, or there isn’t enough work to justify a full-time position. Self-employed contractors are often experts in their field, which means they can start working immediately with minimal training.

If you’re considering hiring a self-employed contractor, you’ll need to be aware that they differ from regular employees under New Zealand employment law.

On this page:

• Self-employed contractor or employee?
• Tax obligations for self-employed contractors
• Health and safety obligations

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Self-employed contractor or employee?

When you use the services of a specialist individual for one-off work (such as a plumber or mechanic), they invoice you directly and file their own tax returns. But sometimes you might require someone to work for you long term, like a web designer or gardener. In this case, they could work alongside other employees in your business – but there are some important differences.

Self-employed contractors generally:

• file their own tax returns
• invoice you for their work
• pay for their own training and development
• invest their own money in a work activity
• provide their own equipment such as a smart phone and vehicle for sales staff.

The other difference between self-employed contractors and employees is that 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 and bereavement leave.

While self-employed contractors don’t generally have the same amount of protection under the law as employees, they are still legally protected by the terms of their signed contract – meaning you can still be legally liable if you break the terms of any contracts signed.

For more information, download Self-employed or an employee? (IR336) [PDF] from the  Inland Revenue website.

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Tax obligations for self-employed 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 (usually depending on the industry and whether the contractor is a company) you are required to deduct tax on schedular payments from payments to contractors and pay these amounts to Inland Revenue unless they have a Certificate of exemption.

If they later become employees, you are then required to deduct PAYE and need to register as an employer with Inland Revenue.

Find out more with our Focus on employees.

Whether your worker is an employee or a self-employed contractor is not solely determined by the intention of you and your worker and any contract you have in place. For example, a contractor could be deemed to be an employee (and therefore subject to employment laws and PAYE deductions) if the nature of the relationship is like an employer-employee relationship, even if the worker intended to operate as a contractor.

If you aren’t sure if your worker is an employee or a self-employed contractor, then download the Self-employed or an employee? (IR336) from the Inland Revenue website.

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Health and Safety obligations

You have the same health and safety obligations to your self-employed contractors as you do to normal employees. You need to comply with the Health and Safety in Employment Act (1992), make sure your workplace hazards are managed and ensure work is done safely.

Even if you hire a self-employed contractor who works from home, you need to be aware of some employer health and safety obligations.

Case study

Judy owns her own graphic design business and largely works from home at her computer. She has recently been hired by a large company on a fixed-term contract to refresh their website. Judy supplies her own computer and workstation, which is part of her home office, but there is also office space supplied by the company that she can use.

Who is responsible for Judy’s health and safety during her fixed-term appointment?

Judy's employer has some duties and obligations under the Safety in Employment Act. This includes taking all practical steps to ensure all their employees have a safe work environment. This could be as simple as reminding the contracted employee that they need to take regular breaks or making them aware of company policy on the use of computers and ensuring the computer workstation is correctly adjusted.

So how would Judy’s employer ensure a safe working environment?

This could include considering:

• The nature and potential level of injury or harm that may occur.
• Ways of eliminating, isolating or minimising work-related risk.
• The availability and cost of anything that could make the job safer.
• Monitoring the performance of the contractor.
• Providing training for the contractor.

What is reasonable depends on:

• The type of work involved (some professions have more of an element of risk involved, but risk can generally be eliminated, or mitigated and minimised).
• Best practice and current working methods in the industry.
• The level of expertise in the work being undertaken.

Sometimes duties might be shared by an employer and a contractor. If, for example, you’re a builder or developer who engages an electrician to do wiring on a building project, you’ll usually have limited duties in relation to the safety of the wiring itself. However, the employer’s duty is much clearer when it comes to providing scaffolding for the electrician to gain access to the work.
To find out more, the Ministry of Business Innovation and Employment – Labour has written A Principals Guide to Contracting to meet the HSE Act 1992.

Find out more about Recruiting staff, Managing staff and Employer deductions.