IRD & Contractors

Contractors and the IRD
The IRD recently set out a guideline on the issue of independent contractors. They outlined the 5 tests that are looked at to determine whether an employee or a contractor relationship exists.

These were:

  • Control: The employer’s right to control the method of doing the work.

  • Organisation or integration: The type of work or way it is done.

  • Independence: Does the worker supply all the necessary tools and do they work from home, and are they free to work for other people?

  • Intention: How are they paid?

  • The economic reality: Is the worker generally in business on his/her own account?

Some other points that the courts take into account where there is an argument include:

  • Contractors are not paid holiday pay or sick pay and with some exception they are responsible for paying their own ACC levies.

  • Contractors are not provided with fringe benefits such as company cars, health insurance etc, because benefits are only provided to employees.

  • Contractors are usually registered for GST and provide GST invoices.

  • While it is possible sometimes to control the work performed by a contractor, the manner in which it is done is solely up to the contractor.

  • A contractor can employ staff or subcontractors to help with the work.

  • A contractor is able to work for more than one person at a time and is not solely at the beck and call of the principal that the work has been done for.

  • There is generally a written contract for service with a contractor.

  • The IRD and the courts will look at the intention of parties overall and can see from their actions what the relationship really is.

Simply calling a person a contractor is insufficient, because it must be supported by evidence as well as actions. If the IRD carries out an investigation of a person claiming to be a contractor, the onus of proof is as much on the hirer of the contractor as on the contractor him/herself.