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Need to Hire an Extra Hand? Employees vs. Contractors

October 18, 2016

As your business workload builds it may be necessary to take on an extra person to help. Moving from being a one-man-band to being 'the boss' is a major milestone for any business owner and there is a lot to get your head around to make sure you get it right.


Before you place an ad for a new team member, you need to understand exactly what help you need from them, how frequently you are going to need them and whether or not this is a short or long-term need. Understanding these key factors will help you to hire the right type of employee or alternatively engage the services of an independent contractor.


There is an important distinction to be made between employees and contractors. Your obligations to your new team member as well as to the IRD and ACC vary greatly depending on the key factors in the contract between you and the new member of your team.


In general terms, employees are people who work for you, while contractors are people who work for themselves. Let's run through both in a little more detail so that you can be sure you make the best choice for you and your business.


Hiring an Employee

Employees fall into a number of different categories from part-time to full-time, permanent or casual, it is important to know what type of employee you need and get the right person for the job.


Part-time employees work set hours each week that range from just a few up to 30 hours, while full-time employees generally work from 30 to 40 hours per week. Start and finish times can vary to take into account the needs of both the business and the employee (for example, an employee may start earlier so that they can finish in time to collect their children from school).


Whether part-time or full-time, if you need help on an ongoing basis for a set number of hours each week for the foreseeable future, it is likely that you need a permanent employee.


If the work is not ongoing but for a specific period, like a month over Christmas in a retail store or to complete a certain project/ task over six months in your office, then a fixed term employee would be more appropriate.


Casual employees are a popular choice for a number of businesses, particularly in service industries where customer demand can be difficult to predict weeks or even days in advance. This type of employee has no fixed schedule and generally they often only work for you occasionally when you call them in at short notice to help you in your time of need (to cover a sudden rush or a sick day for example). Casual employees do not necessarily have to accept every offer of work you make, however, you still need to treat them the same as any other employee.


As an employer, you have a number of responsibilities towards your employees and to the IRD and ACC. All the types of employment arrangement above require you to supply an employment agreement/ contract, supply any/ all of the equipment required to do the job, deduct PAYE and pay ACC levies. All employees are entitled to paid leave, however, for fixed term and casual employees you may opt to deal with this in a different manner to you permanent employees. You will also have KiwiSaver obligations for those employees that are eligible.


Taking on an Independent Contractor

Contractors are a great option when you need a specialized set of skills or a hand with a specific project over a limited term and do not want to commit to all of the paperwork and hassle that can often be associated with managing employees. Perhaps you need someone to help with marketing, project management or to help you crunch some numbers, hiring someone as a contractor is a great way to get the help you need with minimal hassle and can be a stepping stone to see if you could hire someone as an employee when you grow further in the future.


Independent contractors are self-employed either as individuals or work through a company of their own. As such, they take care of their own taxes, typically provide their own work equipment and work the hours that suit them to get the tasks you assigned done (rather than working when you tell them to like with an employee). Once the work is complete, or at reasonable intervals, they will invoice you for the work and you will pay them just as you pay any other supplier. A service agreement/ contract may be supplied but isn't a necessity.


This is an appealing option for a number of businesses across a range of industries. There are no long-term commitments and no employment management or compliance requirements. This also means that you save time and money on compliance, the invoiced cost of the contractor is the true cost to you with no additional expenses in terms of KiwiSaver, management time or payroll management.


Help Your Team to Help You

A lot of team members may not understand their contract, conditions or obligations. Make sure that they understand their position and have the opportunity to seek independent advice on any contract that you offer them. A lot of people can get caught out thinking they are employed as employees, only to find at tax time that they were actually a contractor and are liable for all of their own taxes and ACC levies. Avoid any nasty surprises by being upfront and supportive of your staff.


You don't want any member of your team to end up resenting working with you. This can be demoralizing for both the employee in question as well as those working with them and be destructive to the success and ongoing growth of your business. Ensure that any agreement is as mutually beneficial as possible and that both parties are getting from it what they expected.


Hiring employees or contractors doesn't need to be a headache. Getting the right people, at the right time and on the correct terms is key to furthering the success of your business. Making the correct decisions about some extra help will not only take some of the pressure off your shoulders but will set you up to grow your business on a sustainable path to success.



This advice is general in nature. Every situation is unique and requires tailored advice. MBP has the expertise to guide you and your business through the process of making informed decisions about hiring staff. If you think you may need an extra hand or help with a key area of your business and aren't sure how to proceed, talk to our team today by calling 07 378 6655 or email mailbox@mercerbp.co.nz



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