Engaging a contractor to undertake an activity may be the right decision to best meet the business needs of the University. However, in most cases it will be more appropriate to hire an employee, particularly if it is a core activity of the University. There are many differences between contractors and employees that affect the rights and obligations of the business and the worker. Getting it wrong can cost you and put the University at legal risk. Have a look at the Contract for Services Procedure. The Ministry of Business, Innovation & Employment (MBIE) have produced a useful guide "Employee vs Contractor: Know the Difference", and website containing the below advice.
Here a just a few examples: Employers: If the University hires someone as a contractor when they are actually an employee, the University may later be held liable for extra costs including: unpaid PAYE tax, unpaid minimum wages, holidays and leave entitlements. The University may also be at risk of receiving penalties from the IRD and/or Employment Relations Authority (that could harm reputation). Also the University may be declined approval to bring in workers from overseas. Employees: If hired as a contractor incorrectly rather than as an employee, then they may miss out on their minimum employment rights and their KiwiSaver employer subsidy (NZ Resident), plus end up paying tax and ACC levies that they didn't have to.
Employees also have extra rights, like the right to take a personal grievance. Also, the employer must keep employee' records such as an employment agreement and wage-keeping details.
A contractor is an entity engaged by a principal (the other party) to perform services under a contract for services (commonly called an independent contractor agreement). Contractors may be self-employed, incorporated societies, sole traders, partnerships or a limited liability company. They earn income by invoicing the principal for their services. A contractor must pay their own tax and is responsible to pay ACC levies. Contractors are not covered by employment laws. They are not eligible for employment entitlements (like paid holidays) unless such rights are agreed as part of their contract.
Payment is made either by the FinanceOne system or the Payroll System. Have a look at this payment flowchart to work out which system makes the payment. Also refer to section 9 of the the
Contracts for Services Procedure.
