Employees, Contractors and the IRD
The issue of contractors vs employees is currently a hot button issue with the IRD, and the ramifications for getting it wrong can be drastic.
EMPLOYEE VS CONTRACTOR SCENARIOS - The best method to decide how to treat your worker for tax purposes is to consider the following areas:
Does the worker have the ability to work for another employer on another job while working for you? If he does, he’s a contractor.
Who dictates the amount to be paid to the worker? If the worker is planning on invoicing based on an hourly rate he offered to the employer, then he would be deemed a contractor. However, if the worker is paid a set rate based on the employer’s discretion, he would be viewed as an employee.
Can the worker take holidays as they wish, or is it up to the employer’s discretion? If holiday periods are dictated by the employer, then the worker is likely to be deemed as an employee.
Do they supply their own tools for work? If they supply the majority of their tools, which are not paid for by the employer via any tool allowance contribution, then they would likely be deemed a contractor.
Does the worker invoice the employer for hours completed on jobs? If so, they are a contractor. Employees are paid a rate based on a full day of availability for work, whether the work is there or not. Contractors only get paid based on the hours they work.
These are just a few examples of areas that the IRD look at, and as you read through the above methods, it is easy to see why it has become a grey area for businesses. Essentially, the less control a business has over a worker and their activities, the more likely they are to be deemed a contractor.