What does it mean to be a contractor?
Never worked as a contractor before? Here’s what you need to know.
The uncertainty of Covid-19 means that those New Zealand businesses which are continuing to hire are often doing so on a contract basis.
If you’re currently looking for work, this change means there’s a good chance you’ll be applying for contract positions. But what does it mean to work as a contractor, and what do you need to know about this type of employment? Let’s take a look.
Types of contractors
There are two general types of non-permanent employment contracts in NZ: fixed-term vs. non fixed-term.
On a fixed-term contract, you'd work for an organisation for a specific period of time. Often this involves being brought into cover work when people are away for extended periods – e.g. for parental leave. Other common scenarios are staff working seasonally in farms or tourist attractions.
We won’t be talking about this group here because they’re treated in almost exactly the same way as a permanent employee. They have an employment agreement, just like any full-time or part-time member of staff, and have much the same employment rights.
These employees work when needed, and the uncertainty of their hours should be stated in their employment agreements. However, they don't have to commit to a specific shift offer if they have other work on at that time.
However, like fixed-term employees, casual staff are treated similarly to permanent employees. For example, they’re entitled to paid leave, and employers are responsible for paying ACC and deducting PAYE tax.
Independent contractors, on the other hand, are classed as self-employed. and are generally engaged by an organisation under a contract service agreement. There are some key differences between this group and permanent employees, such as:
- Pay: as external staff, independent contractors invoice the organisation for their services instead of receiving a standard hourly wage or annual salary.
- Tax and ACC: unlike employees, independent contractors pay their own tax and ACC levies. Therefore, they need to get into the habit of putting aside enough money to cover this from every invoice they receive.
- Leave: because independent contractors aren’t covered by most employment laws, they aren’t generally entitled to paid annual or sick leave. This also means they can’t bring personal grievances against employers. Instead, their rights and responsibilities are covered by general or civil legislation.
- Kiwisaver: independent contractors are in charge of setting up and making their own contributions to KiwiSaver.
Temporary contractors are usually engaged under a contract service agreeement.
Understanding contract service agreements
The most important thing when accepting a temporary contractor position is that you understand and agree to the terms in your contract service agreement. The contents of these documents will differ from organisation to organisation, and position to position – so be sure to read yours carefully.
In particular, look out for clauses relating to:
- The organisation’s expectations: this refers to your responsibilities, and also where your work will take place.
- Your working hours: are you expected to work the same hours per day, or make up a total over a given period (a week, for example)?
- Charging for your services: will you be paid hourly or daily? When and how should you invoice for your time?
- Who you should talk to within the company: the organisation should have a designated person who communicates with contractors, so be sure you know who that is and how to reach them.
- Termination: be very clear on the circumstances in which your contract can be prematurely terminated. Generally, the contract can only end early based on the terms both parties agreed to.
- How disputes will be resolved: given that you can’t bring personal grievances as a contractor, what processes are available to you?
- Requirements: some contracts will you require to have certain types of insurance or licences (e.g a full, clean driver’s licence).
- Intellectual property and confidentiality: this refers to ownership of the intellectual property you work on, and what information you can share with people who don’t work for the organisation.
- Sub-contracting: can you employ people to help you carry out your responsibilities?
- Future work: can you approach the organisation’s employees or clients to offer your services after this contract is finished?
A note on renewing your contract...
If you accept the position and later the organisation decides to extend your contract, get this in writing – don’t rely on a verbal extension.
Keys to success as an independent contractor
- Don’t rely on verbal contracts: we know we’ve just said this, but it’s really important. Whenever you accept or renew an independent contractor role, get your agreement in writing and signed by both parties before you start.
- Invoice on time: when you’re new to contracting it’s easy to forget you need to invoice in order to get paid. Make sure you do this as soon as you can, depending on the arrangement you’ve made with the organisation.
- Pay tax on time: if you forget you could be liable for financial penalties.
- Set the right hourly rate: a good rule of thumb is to look at what full-time employees are paid annually in similar roles, and add at least 20% for your hourly rate.
- Put enough aside: remember, you need to sort out your own tax and ACC.
- Keep good records: trust us, you don’t want to wait until your tax is due to find out that you’re missing key documents the IRD wants to see.
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