Monday -Friday - 9:00 - 18:00 New Zealand Time

Employee or Independent Contractor

1. Why do we have to define Employee or Contractor?

A taxpayer’s obligations vary depending on their employment status. There are two categories of status, one is employee, and the other is independent contractor.

2. What are the different obligations?

1) Employee:
    • PAYE must be deducted by the employer.
    • Employee cannot register for GST
    • Employee cannot claim any deduction for employment related expense in deriving their income.
2) Independent contractor
    • They may subject to schedular payments, which the tax is withheld by the payer.
    • Contractors can register for GST and charge GST for their service.
    • Contractors can deduct expense related to their work.
    • Contractors have to pay relevant accident compensation earner and employee premiums for themselves.

3. How to define the employment status?

Using five employment relationship tests can help us determine the employment status, but there is no single test that will always conclusively determine the issue.

    • The control test

The greater the control by the employer over work content, hours and methods, the more likely it is an employee status. However, it is not a conclusively test, a high degree control does not lead to an employee status (TNT World Express Ltd v Cunningham).

    • The independence test

A worker with greater freedom to choose who to work for, where to work, the tools used and so on, is more likely to be an independent contractor.

    • The integration of organisation test

A person is considered as an employee of the organisation if:
a. The type of work is commonly done by employee
b. Continuous (Not a one-off operation)
c. For the benefit of the business rather than for the benefit of the worker

    • Intention test

Intention is typically indicated in the written contracts.

    • Fundamental test

The test involves examining the total situation of the work relationship to determine its economic reality.