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Many New Zealand businesses hire independent contractors to plug a skill gap or complete a new project. While contractors will not form part of your permanent staff or team, they can add a lot of value and provide some flexibility for your business which can be invaluable in certain situations. However, it can be a tough decision to make when considering whether to hire a contractor. This article sets out what:

  • a contractor is;
  • their benefits to businesses include; and 
  • you should consider when hiring one.

What Is A Contractor?

Independent contractors are self-employed people engaged by a business or organisation to perform particular services under a contract for services. This is often known as an ‘independent contractor agreement’. Contractors pay their own tax and ACC levies.

Importantly, contractors are not employees and so most employment related laws do not cover them. This means contractors do not get benefits like:

  • annual leave; or
  • sick leave.

They also cannot bring personal grievances. While they have rights and responsibilities, these are determined by civil law instead of employment law.

What Are The Benefits Of Hiring A Contractor?

While it depends on the industry, your business’ circumstances, and the contractor in question, there are some common themes around why businesses hire contractors. Some of the stated benefits include:

  • additional skills, with contractors being able to bring skills and experience that your team may otherwise lack;
  • flexibility, as contractors are not permanent fixtures of your business like employees are, and so are less of a long-term commitment. In fast-growing fields where good employees can be hard to find or recruit, hiring a contractor may give your business the skills it needs in the interim;
  • ease of employment, with no need to provide leave or other entitlements to contractors; and 
  • typically, less legal liability. For employers that legally must insure against liability for injury to their employees, contractors are a more affordable option. As contractors are their own employers, they have to provide their own insurance.

Factors To Consider When Hiring A Contractor

If your business would like to hire a contractor, there are a range of different considerations. Again, this will depend on the nature of the services they will be providing and other factors. However, there are some general strategies to follow and mistakes to avoid. A good example of the latter is to ignore a contractor’s references. Some employers believe that due diligence is not required for contractors, as they are not as permanent as employees. However, it is always a good idea to read what a contractor’s other clients have written about their work.

You should interview carefully and apply as much due diligence to hire a contractor as you would a permanent employee. While they may not be at your business forever, they still need to bring the right attitude and fit to your existing team. Another important aspect to get right is making sure that everything is captured in writing with the contractor. This is particularly important when detailing the services they will provide. It is often a good idea to get an employment lawyer to check that the contractor’s agreement is sufficient and clear.

It is important to ensure that your business pays contractors on time. This is particularly if contractors could offer useful services to your business in the future. It is important to cultivate a good reputation among contractors, and paying late (or missing payments) is one of the fastest ways to neglect that reputation. In general, making sure your contractors are happy and included is a smart move. It can also help ensure your business gets the best work or services out of the contractor.

Key Takeaways

Contractors are self-employed and often able to add additional skills or capabilities to your team for a limited period of time. They are not employees and so do not have the rights and obligations associated with being an employee, including:

  • annual leave;
  • sick leave; and 
  • tax, which they have to organise for themselves.

When considering hiring a contractor, you should make sure to check the contractor’s references, conduct interviews, and generally treat them well – this will also help boost your business’ reputation among other contractors. If you want to know more about hiring a contractor, contact LegalVision’s New Zealand employment lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

What is an independent contractor?

Independent contractors are self-employed people who a business or organisation engages to perform particular services under a contract for services.

Is a contractor the same thing as a freelancer?

The term ‘independent contractor’ has a particular legal meaning in New Zealand, whereas freelancers are typically used loosely. They often refer to the same kind of worker, but meanings may differ depending on the industry and country.

Why should a business hire a contractor?

Contractors can offer a lot of different benefits to businesses. They can bring additional skills or experiences, complete a special project that your staff may not have the capacity for, and offer flexibility to your company.

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