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    Thinking of Employing Someone? Employee Vs. Independent Contractor

    Congratulations, you’ve decided to take the plunge and hire someone to help you in your business. It’s a big leap to move from doing everything yourself to becoming “the boss” and like anything in the world of small business, there is a lot to know before you get started.

    Before you even think about going through the recruitment process you need to know what type of team member you need, so the first question you need to ask yourself is this: Will your new team member be an employee or an independent contractor?

    This is an important distinction to make. It makes a significant difference in terms of your obligations to both IRD and the person you are hiring, so it is important to get it right. Generally speaking employees are people who work for you, whereas contractors are people who work for themselves.

    Let’s take a look at both to be sure you are hiring the type that best suits your business needs as well as the level of responsibility you are willing to take on.


    Regardless of whether you need someone part-time or full time - if the work is ongoing, needs to be carried out for a set number of hours per week and is expected to continue indefinitely, then it’s likely a permanent employee you need.

    If the work is not ongoing but is for a specific period of time, e.g you need someone to help out for 20 hours per week for two months leading up to Christmas, then a fixed term employee might be what you need. Another example of this might be you need someone on site to complete a large project for 40 hours a week for six months.

    Casual employees are also reasonably common. Generally they work only occasionally and are often called in at short notice to help when you are really busy or perhaps to cover when you are on holiday. They don’t necessarily have to accept every offer of work you make, but you need to treat them the same as any other employee.

    All three types of employee arrangements will require you to supply an employment agreement (appropriate to the specific arrangement), supply equipment, deduct PAYE and pay annual ACC levies. All three are entitled to paid leave - although you may need to deal with fixed term and casual arrangements differently to permanent ones. Kiwisaver employer contributions are also required for those employees who qualify and wish to opt in.

    Independent Contractors

    You might hire an independent contractor if you need someone for a limited period of time to complete a very specific piece of work. Contractors are great when you need a specific skill set that you don’t currently have in your business. Perhaps you need someone to design a marketing and social media strategy, implement a new IT system or perhaps even recruit your new staff member.

    Remember contractors are self-employed, so they do their own tax, often work from home, typically provide their own equipment and work the hours that suit them best to get the job done. A contract service agreement may need to be supplied but isn’t essential. They will invoice you for the work they do and you will pay them like any other supplier.

    This can be an appealing option as there are no long term commitments and no employment or compliance requirements. You do need to be sure however, that the person you engage has their own established business as there is the potential for your business to be accountable for taxes if the contractor fails to fulfil their obligations to IRD. If in doubt talk to your accountant. You may need to take that person on as a fixed term employee instead.

    Don’t let the compliance requirements put you off hiring your first employee. Yes there is a lot to learn but it’s worth it to help you grow your business.

    This blog was written by Ali Hunter from Career Insights. Be sure to check out Career Insights on both Facebook and Instagram.

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