Independent Contractors 

My employer and I can't agree on whether I'm an employee or an independent contractor, and I don't have an employment agreement. What can I do?

Determining whether a worker is an employee or a contractor can be complex and it is generally advisable to seek legal advice if you have a dispute about this matter. If you can’t afford your own lawyer, you can contact your local Citizens Advice Bureau or Community Law Centre for some initial advice. (Note that legal aid may available for cases going to the Employment Relations Authority and Employment Court.)

In general, there are several factors that can indicate that you are an employee, such as:

  • you and the employer intended to have an employee-employer relationship. This can be shown in any correspondence between you, or by the behaviour of either party;
  • the employer has control over your hours of work and where the work is done;
  • your work is supervised;
  • you are paid a wage or salary;
  • you do not pay overhead costs;
  • you can’t hire someone to help you (only your employer can);
  • the employer deducts ACC premiums and PAYE tax on your behalf;
  • you are not liable for GST;
  • your employer is responsible for your holiday payments;
  • your employer pays you sick leave and/or bereavement leave;
  • the employer supplies the materials or equipment you need to do the work; and
  • you can be prevented from working for another employer at the same time (with some exceptions, independent contractors are entitled to contract themselves out to two or more clients at the same time if they wish).

There are some exceptions for people in certain types of work, who are generally treated as independent contractors unless their contract specifically states otherwise.  For example, actors and other people who work in the film or video game industry.

If you and your employer are in disagreement over your employment status, you can call the Ministry of Business, Innovation and Employment's (MBIE) Workplace Contact Centre on 0800 209 020 for help to resolve the issue. (You can get in touch with your trade union for assistance, if you belong to one.)

The Employment Relations Authority can determine your status if you and the employer cannot come to an agreement about it (see the next question).

As for how it affects your tax obligations, Inland Revenue has a booklet to help you work out your status for tax purposes, Self-employed or an employee? (IR336).

For further help, contact your local Citizens Advice Bureau, Community Law Centre or lawyer.

Note that if you are an employee then it’s a legal requirement for you and your employer to have a written employment agreement.

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How does the Employment Relations Authority determine whether someone is an employee or an independent contractor?

The working relationship between you and the organisation you do work for (i.e. whether you are an employee or an independent contractor) isn’t necessarily determined by how you or the employer describe the relationship.

When deciding on the nature of your employment relationship, the employment institutions (the Employment Relations Authority and the Employment Court) will always examine the real nature of the relationship – in other words, how it operates or operated in day to day practice. 

They can also consider what is common practice in the industry and what both parties to the agreement intended the relationship to be. However these factors alone will not override the examination of the real nature of the relationship.

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I’ve been offered a job, but as an independent contractor rather than an employee. What’s the difference?

The main differences are that:

(a) employees:

  • are covered by the Employment Relations Act 2000 (ERA);
  • have minimum legislative entitlements such as annual leave, public holidays, sick leave, and bereavement leave, as provided by the Holidays Act 2003;
  • cannot be lawfully dismissed unless there is substantive justification and a fair process is followed;  and
  • fulfil their tax and ACC obligations through their employers (e.g. through PAYE).

(b)  independent contractors:

  • are not covered by the ERA or the Holidays Act 2003;
  • can (generally) be terminated by giving them notice;
  • are responsible for their own ACC and tax payments; and
  • may need to be GST registered. 

The contractor's relationship with the person or organisation who is engaging their services is largely governed by what the parties agree to in their contract (generally referred to as a “contract for services”). 

Contractors may be able to charge a higher rate of pay for their work because it has to cover them for times when they are sick and cannot work, or otherwise not working (for example if they decide to go away on holiday). 

They can also claim some work-related expenses from the Inland Revenue. Many contractors find that they have a lot more independence than an employee (e.g. deciding their own hours of work), and they can, in theory, choose to work for more than one client at the same time (but this depends on the terms of the contract for service).

Therefore, if you’re thinking of working as an independent contractor, it is essential to have a written contract in place which covers the conditions under which you will provide your services.

Bear in mind that the working relationship (i.e. whether you are an employee or an independent contractor) between you and the organisation you do work for isn’t necessarily determined by how you or the employer describe the relationship.

If there was a dispute of your status and you applied to one of the employment institutions (the Employment Relations Authority or Employment Court), it might decide that you are actually an employee. (See the previous question for more about how an employment relationship is determined.)

Before you agree to work as an independent contractor, read our answer to the next question.

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I’m starting out as an independent contractor. What do I need to know?

Organisations usually choose to engage an independent contractor rather than an employee in situations where:

  • the work is occasional, short term or one-off;
  • the work involves an area of expertise outside of the organisation’s core business;
  • the organisation has insufficient resources to employ an appropriate person within its budget for employees; or  

As an independent contractor (also known as “self-employed”), you aren’t covered by the Employment Relations Act. However you still have health and safety protections and responsibilities - from 1 April 2016, a business is responsible for the health and safety of its employees, contractors and sub-contractors, as well as clients and visitors on the work site).

You’ll be responsible for paying your own tax, and can be held personally liable for any damage or loss that you cause.

Your contract
As you are not covered by the Employment Relations Act 2000 or the Holidays Act 2003, you’ll have no entitlement to sick leave, bereavement leave, or annual leave, nor can you raise a personal grievance if a dispute arises between you and the client you do work for.

For this reason the agreement or contract between you and any person or organisation that you do work for, should cover things like:

  • your hours of work, including whether you will work outside of normal business hours;
  • how much you will be paid including whether your rate of pay will be higher if you work on public holidays - your hourly rate should cover you for days when you are sick or injured (or bereaved) and can’t work;
  • when and how you will be paid, ;
  • the term of the contract, how much notice should be given by either party if it is terminated early, and acceptable reasons for doing so;
  • how disputes will be resolved; 
  • who will be the owner of intellectual property developed during the course of the contract (e.g. software code).

It would be a good idea to have a lawyer look over the contract before you sign.

As an independent contractor, you would be responsible for paying your own taxes and levies as required by law, including ACC levies. 

You may also be required to register for GST and file GST returns. If your income is, or is expected to be, more than $60,000 then you must register for GST. Otherwise it is your choice.

The easiest way to make sure you have enough money to pay your tax, is to put away a portion of your income each time you are paid (about 20-35% depending on how much you earn). You can use an Inland Revenue calculator to work out exactly how much tax you’ll need to pay in any given tax year.

Inland Revenue may charge you interest and penalties if you fail to pay the right amount of tax, or fail to register for GST when required to do so. If you aren't sure about your tax obligations seek further guidance from Inland Revenue.

For tax purposes you will need to keep thorough accounts of your earnings and work-related out-goings, and record of all of your business costs so you can claim against them on your tax return and/or GST return. Consider finding an accountant to give you advice, do your book-keeping and/or do your tax return for you. 

It’s a good idea to open a separate bank account which is just for your business income (what you earn from contracting) and expenses.

Depending on the type of work you do, it could also be worth having a separate credit or debit card which is only used for work-related expenses. Be sure to keep the receipts so you can claim on them on your returns.

Help from IRD
You can attend a tax seminar to learn about business tax, recording your income and expenses and so on. They are held in locations all over New Zealand. Inland Revenue also has a useful book, Smart Business, which you can order for free. There’s more information on the IRD website and they run regular workshops too.

Another thing to consider is liability insurance, as you can be made personally liable for any damage you cause to the organisation’s property, or any losses they suffer resulting from your work. (More about this is in the next question.)

For further help, contact your local Citizens Advice Bureau, Community Law Centre or lawyer.

Other things to think about:

  • Set aside money for those periods when you are between contracts (aim to have enough money to live on for three months).
  • You could join up with a recruitment agency, which can find you clients and make sure you get paid.
  • If there is a professional association for workers in your field, the benefits of becoming a member may include free legal advice, advocacy and information resources.
  • You can find information for people starting up their own business, on the business.govt website.

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I’m a cleaning contractor. The organisation I clean for has accused me of damaging their property. Am I liable?

If you are an independent contractor (as opposed to an employee of the cleaning company) you can be held personally liable for any damage you cause while you are contracted to do work for the organisation.

Check your contract for a clause which specifies how disputes should be handled. If there isn't one, either party can take a claim to the Disputes Tribunal to settle a dispute over liability for damage done to property.

If you are an independent contractor, consider taking out liability insurance to cover yourself for future incidents where you could be held responsible for damage or loss by the organisation.  

For further help, contact your local Citizens Advice Bureau, Community Law Centre or lawyer.

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I invoiced my client months ago but they have never paid me. What can I do to get my money from them?

The contract between you and your client (the other party) should state when, how much, and how they should pay you.

Ask them why they have not paid – they might be withholding the money because of a problem with your work, or the invoice could have got lost. 

Provided the amount you are claiming is no more than $15,000 (or $20,000 if the other party agrees), you can go to the Disputes Tribunal if you and the other party are in dispute about, for example:

  • whether they owe you the money;
  • the amount you want them to pay;
  • the quality of your work.

If the other party doesn’t dispute the amount, but just refuses to pay, you can try going to a debt collection agency. However, do be aware that they generally charge hefty fees for this service. More information is on our Recovery of debts page.

I was contracted to do some work, but they have asked me to terminate the contract early. What are my rights?

The person or organisation that contracted you for your services should follow the terms of the contract regarding early termination (cancellation). For example, it might specify how much notice either party needs to give if they don’t want the contract to continue, and specify acceptable reasons for cancelling the contract.

A contract is legally binding, so it can be difficult for one party to cancel it if the reason is not provided for in the terms of the contract. You can challenge the cancellation of the contract, but it would be a good idea to seek legal advice first.