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Employee or contractor - take care 27 Mar 2013

The hope is by doing so you will bypass the obligations of the Employment Relations Act and avoid tax complications. As accountants, we don’t advise you on the Employment Relations Act but we do comment on tax.

Simply signing up a contract for service between you and the “employee” will not necessarily mean the person about to work for you is an independent contractor. Particularly if the contract does not reflect the true relationship.

You need to be particularly careful when it comes to tax. If you fail to make PAYE deductions when you should have done, the IRD can make you pay the PAYE and charge you a penalty. There could also be use of money interest and ACC premiums to be paid on the wages.

IRD sets out five tests but, unfortunately, none of them is black and white and judgment is required. The five tests are:

  • Do you control the “employee”?
  • What is the intention of the parties?
  • Is the contractor truly independent?
  • Is the type of work being done near enough to the same as that being done by other staff?
  • Does what the contractor is doing look like an independent business?

Conclusion

There’s no room here to discuss this subject fully. This is just an outline. If you have any doubt, please consult us.

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