Do you need an Employee or a Contractor? Here’s a guide to help you choose…
In New Zealand you can engage people to work for you in two main ways: you can choose between Employees and Contractors.
But many small businesses aren’t clear on the difference, and why sometimes it may be preferable to hire a Contractor rather than an Employee, and vice versa.
Let’s take a look at the difference between an Employee and a Contractor:
- Has a “boss” who directs when, where and how the work is to be done – and this must legally be outlined in a written Employment Agreement.
- Faces discipline if they don’t carry out the work required, or fail to meet other standards (e.g. punctuality, dress codes, computer use, and so on).
- Has all their equipment provided for them.
- Receives annual leave, sick leave and bereavement leave in addition to a wage or salary.
Employees may be fixed term, full-time, part-time, casual, seasonal or homeworkers.
- Controls what jobs they do, and when and how they do them.
- Provides and maintains their own tools, equipment, vehicles and safety gear. They are responsible for their own health and safety (unlike an Employee, whose employer is responsible for this).
- Has a contract for service, rather than an Employment Agreement.
- Is responsible for calculating and paying their own tax, and for paying ACC levies.
- Does not receive annual leave, sick leave or bereavement leave.
It’s far less onerous for an employer to engage a Contractor, as there are fewer overheads and less admin tasks (for example, there’s no need to do payroll or PAYE for a Contractor).
Contractors are ideal for specialised roles and for professional advice
Contractors are usually specialised in a certain field and do not need to be trained to get up to speed, whereas an Employee will need on-going training.
However, Contractors cost a lot more as an hourly rate for a business. Therefore Contractors are suited for specialised projects and tasks, like builders, HR consultants, engineers, IT, project management, and so on.
Another scenario where it can be helpful to engage Contractors is when your business is in growth mode. You may need to engage a business coach or marketing specialist for a few hours each month. This way you have access to their specialised input when you need it: but there’s no necessity to put them on the permanent payroll.
When is it preferable to engage an Employee rather than a Contractor?
As it is far easier for a business to engage a Contractor than an Employee, you may be wondering, “Why bother with employees at all?”
With an Employee you have the magical word: Control!
You have a good amount of control over an Employee, as you can have set KPIs, hours, manage them closely and coach them. It’s not possible to manage a Contractor this closely.
Employees are ideally suited for admin and sales-type roles, as you have more control. You can manage their output and monitor them closely.
Need some help getting systems in place for Employees and Contractors?
To get the best performance out of your team, you need detailed Agreements and Contracts. Let Recruit NZ help you get the performance you need from your workers… whether they’re Employees or Contractors.
Contact our friendly team today to discuss your needs.