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Running a small business is an exciting way to be your own boss, pursue a passion project, and develop a business idea. It will be hard work, but being a small business owner is an incredibly rewarding venture. However, running a small business has some legal requirements you will need to consider in your business plan. These include: 

  • employment law;
  • tax law;
  • consumer law; and
  • other statutory requirements. 

There may be severe penalties if you do not comply with these obligations. However, there is no need to panic if you do not have an in-depth understanding of tax law. This article will outline some legal obligations you will have when running a small business in New Zealand. 

Employment Law

If your small business has employees, you will need to make sure that you comply with New Zealand employment law in your business plan. First, make sure you have an employment contract with all your employees. This contract will describe the terms under which they work for you, as well as the obligations you owe them. In addition, the law will provide minimum terms that you need to include in your employment agreement. These minimum terms include:

  • ensuring that you are paying your employees minimum wage; and
  • guaranteeing breaks and leave entitlement.

Many of these employment agreements have free templates online, which you can find through a Google search.  It is a good idea to create a template for your employment agreements with your business logo on them to make it quick and easy to hire new employees and ensure all obligations are taken care of.

Additionally, you will need to register your new business as an employer with Inland Revenue to make sure that you can deduct income tax from your employee’s pay.

Finally, you will also need to make sure that you are keeping up with your KiwiSaver obligations. Every employee will need to provide you with a form that outlines their KiwiSaver contribution rates, either 3%, 4%, 6%, 8% or 10%.

As a small business owner, you must contribute at least 3%. It is your responsibility to take your employee’s contribution out of their pay, based on the amount they choose to contribute. 

Tax Law

If you are running a small business, you will need to pay tax to the government. How you pay your tax depends on your business structure. If you are a sole trader, you can pay through your own tax number. If you are in a partnership, you and your partners can use your personal IRD numbers, but the partnership itself should also have its own IRD number. You will need to declare your share of the partnership income in your tax returns, and will also need to file a partnership tax return that shows how the partnership’s money has been distributed to the partners. Finally, if you are running a company, it will need its own IRD number. 

Regardless of your business structure, you will need to pay income tax on your business’s profits. Therefore, you will need to ensure that you have a good record of what your business has made, as well as any expenses you have. If you are a sole trader or a partnership, this comes under your personal income tax (as stated before).

You also have tax obligations for any employees you have. The income tax system in New Zealand works primarily under a pay-as-you-earn system. This system means that you pay income tax out of every pay cycle instead of in one lump sum at the end of the year. It is your responsibility as the employer to deduct tax out of the employee’s pay from every cycle. How much you need to deduct from your employee’s pay depends on how much they earn and any other payments they are making, including whether they have a student loan, are paying child support, or their Kiwisaver contribution rates. 

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Consumer Law

If your business is ‘in trade’, meaning you sell goods or services, then New Zealand consumer law will apply to your business. These laws ensure that consumers are given products or services that are:

  • of good quality;
  • worth what they paid for it;
  • fit for purpose; and
  • accurate to the descriptions provided.

 In addition, these laws are designed to ensure that customers are not taken advantage of or given a faulty product. Complying with consumer law means that you need to ensure that your goods and services are up to standard. If they are not, you must grant a refund or a replacement. 

The Fair Trading Act is also an essential element of consumer law. These laws mean that you will need to make sure that your products and services are advertised legitimately to potential customers. This includes any advertisements that happen on non-traditional channels, like social media. 

For example, you cannot make false promises about your product to induce people into buying them. 

Other Statutory Obligations

Depending on your business plan, you may have other regulations or legal obligations to fulfil in order to run a successful small business. You may need to research these statutes or regulations to see if any apply to you. Some statutes you may want to have a look at are the:

  • Resource Management Act 1991 (this Act is about to be updated);
  • Crimes Act 1961;
  • Health and Safety at Work Act 2015;
  • Property Law Act 2007; and
  • Building Act 2004. 

Additionally, some local councils have specific requirements regarding alcohol and food licensing. Make sure to check with your council to see what regulations may apply to you.

Key Takeaways

Running a small business is a vastly rewarding venture, but it can be tricky to understand all your legal obligations. Make sure you are complying with employment, tax and consumer law, and any further specific obligations you have as a small business owner.

If you need help with understanding your legal obligations for a successful small business, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.

Frequently Asked Questions

Do I need to write a separate employment agreement for every person who works for me?

You will need to have a signed copy of an employment agreement for every person who works for you. However, this does not need to be completely different for each person. Your legal obligations as an employer will largely stay the same for each employee you have. It is a good idea to create a template that allows you to ensure that every employment agreement you have includes all your legal obligations. This will protect both you and your employer. 

Do I need to register my business for tax if I am working as a sole trader?

No, you can use your personal tax number if your business is operating as a sole trader. You will pay income tax based on your business profits. 

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