You're an employer if you:
- hire someone to work as part of your business or organisation under a contract of service
- control the manner in which the person works
- supply any equipment for that person to use when working for you.
Employees can be permanent, fixed-term or casual, and could work full or part time.
When you start employing you must register with us as an employer and you need to make deductions from payments you make to employees.
Find out more about your other obligations to employees at Business.govt.nz
- Contractors receiving schedular payments
Some contractors are not employees but are engaged under a contract for service and receive schedular payments. Schedular payments are made to self-employed/independent contractors who are engaged in certain activities.
You may need to treat these schedular payments differently, for example where:
- a certificate of exemption is provided, no tax is withheld
- a special tax rate certificate is provided, tax is deducted at the rate shown on the certificate
- the contractor is a company, no tax is deducted unless the company is:
- working in the agricultural, horticulture and viticulture
- industries, or
- a non-resident entertainer, or
- a non-resident contractor, or
- receiving schedular payments made to it by a labour hire business under a labour hire arrangement.
You don't need to make any other deductions like KiwiSaver or student loan from their schedular payments, this is their responsibility.
You have to register as an employer if you have contractors receiving schedular payments.
Your contractor will need to complete a Tax rate notification for contractors (IR330C) and the tax code for schedular payments will be 'WT'. The payments are taxed at the standard rate for the activity or a rate otherwise chosen by the contractor subject to minimums. If the contractor:
- Is GST registered they will supply you with a tax invoice and you should work out the tax on the GST exclusive amount.
- Isn't registered you should work out the tax on the full amount.
- Doesn't supply an IR330C, the tax will be deducted at the no-notification rate of 45%, unless they are a company that is a non-resident contractor or a non-resident entertainer where the rate is 20%.
- Self-employed contractors
Generally speaking, independent contractors and sub-contractors are self-employed people who control how they do the work, provide the major assets or working equipment needed for the job, and will invoice you for their services.
If they're not performing a schedular payment activity you don't need to deduct tax from their payments, unless you've agreed in writing to treat their payments as voluntary schedular payments. But you must keep records of the person or company and how much you paid them, e.g., the tax invoice.
Find more information about your obligations to contractors at Business.govt.nz
- How to deal with other payments
You may make payments or give allowances to employees. Some are taxable and some aren't.
- Benefit allowances (taxable) examples include - most accommodation, farm cottage or board.
- Reimbursing allowances (not taxable) examples include - mileage allowance, tools, and some accommodation where the employee is required to work elsewhere for a limited amount of time.
- Travel allowances (taxing depends on situation) examples - includes working outside normal hours of work, or outside normal place of work.
- Wages to spouse (taxable) - husband, wife, de-facto or civil union partner. You will need permission from Inland Revenue to claim these wages as an expense.
- Lump sum payments (taxable) examples include - bonuses, retiring or redundancy payments.
- Holiday pay (taxable) examples include - holiday pay and pay for statutory holiday.
If you're a sole trader you can't pay yourself a wage, instead you take money from the business for personal use (these are called "drawings").