Difference between employees and contractors
Employees and contractors are not the same, and you have different obligations to them.
The main difference is that:
- employees work for you
- contractors work for themselves.
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Employees |
Contractors |
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They work for you directly and can be told what to do, when to do it, and how to do it. This includes people working in a triangular employment situation. |
They decide when and how they do the work, and can employ other people to help them finish it. |
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They work a set number of hours a week or month, and get paid overtime when they work extra hours. |
They are responsible for getting the work done to the required standard in the agreed time frame. |
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They work where you tell them to, using equipment you provide. |
They usually own, and take care of, their own assets and equipment. |
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They have an employment agreement with you. |
They run their own business, advertise their services, and are free to work for other people. |
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They are not covered by most employment-related laws. This means they don’t get entitlements such as annual holidays or sick leave, and can’t lodge personal grievances. |
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They require employers to pay their PAYE and KiwiSaver for them. |
They pay their own tax and ACC levies. |
Contractors
Hiring a contractor can seem like an appealing option because there are no long-term commitments. However, contractors aren't suitable for every role, and you need to carefully consider what they will or won’t do for your business’s growth.
Hiring a contractor might be a good idea if you:
- need a specific skill that is otherwise unavailable
- know you’re only going to need this kind of help for a finite period
- are not trying to build a permanent team with their skills.
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Pros |
Cons |
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Contractors may complete work somewhere other than your place of business. This means you’ll need to trust that they’ll get the job done to the required standard and deliver on time.
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You can hire them when you need them. |
They may have other work commitments and might not be available when you need them. |
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They’re responsible for their own permits and licenses. |
You may not get the same sense of loyalty out of them as employees. |
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They’re experienced and require little training, if any. |
You must consider written agreements with contractors carefully – for example, you may need clarifications around copyright ownership or legal liabilities. |
Unpaid interns and volunteers
You might want to hire an unpaid intern or volunteer if you have a specific job to do that could help an inexperienced person gain new skills and improve their employment prospects.
This is a way for you to get free help, but you must make sure the person doing the work gets some benefits as well.
Usually, unpaid internships and volunteer positions are best suited to businesses that:
- have specific jobs to do that will give someone new skills or opportunities they wouldn’t otherwise get
- offer services that give back to the community.
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Pros |
Cons |
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They often have a lot of passion and can bring fresh ideas to the business. |
They need to be kept safe and given the same health and safety training or equipment as any other staff member. |
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They can free up your time, or the time of other staff. |
Training them can take more time than you initially planned for. |
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They can be good sounding boards for new ideas, products or services. |
A volunteer can leave at any time. |
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They often have rich and diverse experiences. |
You can’t pay them, but you can give them a koha or gratuity. Make sure they clearly know this is not payment. |
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They can be grateful and appreciative of learning new skills. |
Unpaid internship positions usually only last between 6 weeks and 12 months. |
Think about following this best practice when taking on an unpaid intern or volunteer:
- detail in writing how the unpaid internship or volunteer will work. Make it clear to the person in writing not to expect payment or any other reward so that there is no misunderstanding.
- be explicit that the position will not lead to work.
- avoid having the unpaid intern or volunteer do work which is integral to the business, such as work that an employee would normally do.
- limit the duration of work and the hours worked by the unpaid intern or volunteer. The longer a person volunteers and the more hours they work, the more it’s likely they are to be an employee.
- keep a record of how long the internship or volunteer position lasts.
- if appropriate, give them a reference once the position ends.
There are many organisations that specialise in matching businesses with unpaid interns and volunteers. Many of them are free and they try to make a good fit between both parties, so they’re worth contacting. Search online to find one in your area.
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