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?

If there isn’t a written employment agreement (which is in itself unlawful), there should have been some verbal understanding between you and your employer before you started work. You should make a record of your understanding of the agreement that you thought you had with your employer.

This can be a complex area and it is generally advisable to seek legal advice if you have a dispute about whether you are a contractor. If you can’t afford your own lawyer, contact your local Citizens Advice Bureau or Community Law Centre.

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 of you;
  • 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, the Inland Revenue Department 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.

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

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

When deciding whether your employment relationship is that of an independent contractor or employment, 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 the parties to the agreement intended the relationship to be (although these factors alone will not override the examination of the real nature of the relationship).

For example, they may ask the following questions:

  • Does the employment agreement or contract for services provide guidance on the nature of the relationship intended by the parties?
  • Does any apparent intention correspond with the “real nature of the relationship”?
 

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 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 someone else 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 will do work for isn’t necessarily determined by how you or the employer describe the relationship.

For example, the contract might say that you are an independent contractor, but if the relationship was to be examined by 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.)

Therefore, even if you agree to work for the organisation as an independent contractor, they might still have to treat you as an employee (e.g. be entitled to paid sick leave or make a personal grievance). Of course, this would also mean that you would be required to have had income tax deducted from your salary or wages by your employer and paid to the Inland Revenue.

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
  • the nature of the work is better suited to an independent contractor arrangement than an employment relationship.

As an independent contractor (also known as “self-employed”), you aren’t covered by the Employment Relations Act (except for some Health and Safety provisions). You’ll be responsible for paying your own tax, and can be held personally liable for damage or loss that you cause.

It is important that the nature of the relationship is clear, due to the different ways the law requires employees and independent contractors to be treated.   

You can find an explanation of the differences between employee and independent contractor, in our previous question and answer.

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 organisation 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 the following (for example):

  • your hours of work, including whether you will work outside of normal business hours;
  • how much you will be paid. Your hourly rate should cover for days when you are sick or injured (or bereaved) and can’t work;
  • when and how you will be paid, including whether your rate of pay will be higher if you work on public holidays, for example;
  • how much notice should be given by either party if the contract of services is terminated early, and acceptable reasons for doing so;
  • how disputes will be resolved; and
  • 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.

You can find out about your Health and Safety obligations as an independent contractor, on the Ministry of Business, Innovation and Employment's (MBIE) Labour Information website.

Taxes
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. These requirements apply if the payments made to you (turnover) in a year for carrying out business activities have been, or are expected to be, over a certain level (currently $60,000). 

The easiest way to make sure you have enough money to pay your taxes, 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 IRD calculator to work out exactly how much tax you’ll need to pay in any given tax year, depending on your earnings.

IRD may charge you interest and penalties if you fail to pay the required taxes, 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 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 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 ask for a meeting with an IRD business tax advisor, who will tell you how to manage your work finances and tax obligations. The 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.

Insurance
Another thing to consider is liability insurance, as you can be made personally liable for damage you cause to the organisation’s property, or 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?

You can be held personally liable for any damage you cause while you are contracted to do work for the organisation. This is why liability insurance is a good idea.

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

If you truly 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. If you provide services to a cleaning company, you should consider whether you are really an independent contractor, or an employee of that company. 

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


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 in the mail.

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; or
  • damage done to their property during the time you did work for the other party; and
  • the amount you are claiming is no more than $15,000 (or $20,000 if the other party agrees).

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?

They 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.