16 February 2022
Identifying if someone is an employee or a contractor can be unclear, but if you don’t understand the difference and make the distinction between the two, it can have costly consequences for your agribusiness.
In the agricultural sector there are various roles which can be of a self-employment nature, such as fencers, tractor drivers and relief milkers. Most contractors use their own equipment and work for several different farmers over a period. Employees, on the other hand, work for you and generally use your equipment.
Other differences between an employee and contractor include:
Employees | Contractors | |
|---|---|---|
Equipment | Generally, use their employer’s equipment | Generally, use their own |
Employment | Have an employment contract with your business | Can work for anyone and typically invoice for their services |
Tax | Employer pays PAYE and Kiwisaver on employees’ behalf | Responsible for their own tax obligations |
Work hours | Work set hours | Work to agreed time frames |
Work conditions | Work where and when they are instructed to | Can decide how they work and possibly employ others to help them |
To identify whether the arrangement is one of employee or contractor, the nature of the working relationship needs to be looked at not just the title the two parties have given it.
- Identify the nature of the working relationship by examining the duties to be performed and the intention of the role.
- Understand if your business has control over these duties or if the work is done independent of your direction. Also, keep in mind whether the specific role’s responsibilities with current employees is similar or different.
- Lastly, take notice if the person is acting individually or as a business.
- It’s common for an independent contractor to have their income returned as schedular income through the PAYE return of the business they invoice.
Generally, hiring a contractor is best when your business lacks a specific skillset for a one-off project and/ or the role is required at short notice. To eliminate confusion, it’s best practice to discuss and obtain the right advice before any work commences. For more information or advice, contact us or get in touch with the Accounting and Business Advisory team.