How to hire and pay independent contractors in New Zealand

Roughly 1 out of every 20 workers in New Zealand are independent contractors, and nine out of 10 of them are happy with their jobs. 

The island nation of New Zealand is an appealing choice for companies that want to tap into the global talent pool and enjoy the benefits of working with global contractors.

But before you work with contractors in New Zealand, it's important to have a good understanding of the processes involved in hiring, managing, and paying contractors. From complying with local labor and tax regulations to understanding the risks of misclassifying contractors and employees, it can be challenging to navigate the world of contractor management. 

This article offers detailed information about what you need to know before hiring independent contractors. This includes information on contractor payments, worker misclassification risks, tax and compliance practices, and more.

Unique considerations of managing contractors in New Zealand

The process for hiring and paying contract workers in New Zealand has a few particularities that distinguish it from most other countries. One of the biggest differences is New Zealand's method for deciding how individual workers are classified. 

New Zealand’s labor laws differentiate between workers who are "employees" and workers who are "contractors." However, New Zealand uses four legal tests to determine how workers are classified. These tests consider a range of aspects of specific positions to ensure that a worker's classification accurately represents the nature of their role. The tests are:

• The Intention test is designed to take into account the professional relationship that you and your workers have in mind.

• The Control vs. Independence test measures how much freedom a worker has to decide when, where, and how they work.

• The Integration test assesses how crucial a position is to a company's operations.

• The Fundamental/Economic Reality test considers compensation, how a worker is paid, and whether taxes are deducted.

Other key considerations to keep in mind before you hire and pay contractors in New Zealand include:

• Compensation: the minimum wage in New Zealand does not apply to independent contractors. Instead, you and the contracted workers must agree on a fee, which is written into the contract. It's common for independent contractors to negotiate this fee.

• Tax deductions: you may or may not be responsible for deducting income tax withholdings depending on whether a contractor receives schedular payments or is considered a contract-as-hire worker.

• Record keeping: the Inland Revenue Department (IRD) requires businesses to keep several records on file for all independent contractors for at least seven years. These include wagebook information, completed tax forms (if applicable), and any IRD requests to change a worker's classification.

How do I pay an independent contractor in New Zealand?

There are several options for paying independent contractors in New Zealand: 

• Online payment platforms like Wise, Paypal, and Stripe

• International money orders from a service like Western Union 

• International wire transfers 

Keep in mind that each option has its benefits and drawbacks. For example, if you use a digital payment platform like Paypal or Wise, you'll have to account for exchange rates and make adjustments when they change.

On the other hand, banks may charge high fees for international transfers, and the transfers can take a long time to process. Money orders may be less expensive, but you must still contend with lengthy processing times and managing exchange rates.

To simplify how you hire and pay contractors in New Zealand, you can use a contractor management service like Remote. The Remote platform makes it easy to manage every aspect of the hiring process, from automated onboarding procedures to fast and secure payments in the contractor’s preferred currency.

Remote's contract management platform lets you automate time-consuming and monotonous administrative tasks like approving invoices. You can approve invoices and payments in seconds with just one click, or set up recurring invoices that process automatically.

Streamlining and automating your payroll processes can improve your contractor's experience and help you retain remote workers. You'll also free up time you can spend focusing on your business instead of paperwork.

Working with a contractor management service helps you remain compliant with local tax and labor laws when you hire internationally. Remote team of employment experts can help you minimize the risks of noncompliance. And with Remote's Fair Price Guarantee, you'll never be hit with surprise hidden fees. 

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What are the risks of misclassifying New Zealand independent contractors as employees? 

A worker's classification determines whether they are entitled to certain protections according to New Zealand labor regulations, so it's crucial to make sure that you're correctly classifying your remote contract workers.

In New Zealand, several factors distinguish contract workers from employees:

• Worker independence: contractor workers in New Zealand enjoy a fair amount of autonomy. They're free to make their own decisions about where they work, when they work, and who they work with. They're also entitled to choose the tools they use to perform their duties. Employees, on the other hand, have far less say on those matters.

• Integration: employees are more fully integrated into a company than contractors. Employees routinely work on-site, in teams, and use equipment provided by the employer. Contractors are more often independent remote workers and use their own equipment.

• Benefits: independent contractors do not receive the company benefits that employees enjoy. These include paid time off for bereavement, maternity, and illness, and other perks.

• Duration: regular employees are generally hired for an indefinite period. Contractors are generally hired per project or for a specific duration. 

Given the importance of correctly classifying international workers, it's understandable to feel overwhelmed. But you don't need to be. This expert guide to the misclassification of employees vs. contractors makes it easy to understand the many nuances involved. It provides an in-depth discussion of what exactly misclassification is and offers tips for correctly classifying your workers. 

Misclassifying workers, even by mistake, carries serious risks, such as: 

• Financial penalties: misclassifying workers makes you vulnerable to financial penalties and fees that can be quite costly. For example, you may have to make back payments for taxes that weren't withheld or reimburse your workers for benefits they didn't receive, such as paid time off and other employee entitles. In New Zealand, misclassification fees can run as high as $30,000.

• Additional penalties: you may also suffer further consequences from the IRD and the Employment Relations Authority if you misclassify workers.

Beyond penalties and fees, misclassification can hurt your business.

For example, you could run into trouble regarding the rights to your company's intellectual property. This is because employees generally do not own the work that they produce for an employer. However, that isn't always the case with independent contractors. Misclassifying workers can call ownership into question and instigate a costly and time-consuming legal battle.

Working with Remote to manage your international contracts is an effective, scalable, and secure way to sidestep misclassification risks. 

Our handy Contractor Compliance Checklist helps you accurately determine how your workers should be classified by walking you through the process step by step. 

Use our free Misclassification Risk tool to gauge your current level of risk and discover actionable solutions to improve.

Tax and compliance practices for hiring independent contractors from New Zealand

Complying with local tax regulations when you hire and pay contractors in New Zealand is just as important as properly classifying your workers. Tax regulations can vary considerably from country to country, so staying on top of the rules wherever you hire workers is vital.

If you're working with contractors in New Zealand, you have a few important responsibilities to remain compliant. For example, you might have to deduct income tax withholdings if your contractors work in contract-for-hire positions and receive schedular payments. However, there are a few exceptions. You don't need to deduct taxes for workers who have a Certificate of Exemption or a 0% Tax Rate Certificate, provided they aren't subject to a labor hire arrangement. If deductions are required, you're only responsible for income tax withholdings.

If you have contract-for-hire workers, they must fill out an IR330c form from the IRD. This form tells you the rate you need to deduct for income taxes. If a contract-for-hire worker doesn't provide you with an IR330c form, you'll need to choose the most applicable of the following rates:

• Standard non-notified rate of 45% 

• Standard non-notified rate of 20% for non-New Zealand residents 

In general, if your contractors do not receive schedular payments, you don't have to worry about tax deductions. However, contractors can request that you withhold taxes on their behalf, in which case they must complete the IR330c form. 

Additionally, there are a few details that US-based companies that hire and pay contractors in New Zealand should be aware of. In addition to meeting the IRD's record-keeping requirements, US companies must also comply with the Internal Revenue Service (IRS). That entails filing a few forms:

• W-8 BEN Form: this form essentially serves as an international substitute for the W-9. It verifies the non-resident status of your international workers and indicates which non-U.S. country they submit their taxes to.

• W-8 BEN-E Form: this is a similar form that applies in the case of independent contractors who invoice through their own entity.

• 1096 Form: this is the Annual Summary and Transmittal of US Information Returns. It summarizes the information on all your other tax forms, but you don't need to file it if you submit your taxes electronically. Likewise, it isn't required if your contract workers aren't US residents. 

This guide to tax compliance for US companies has more information, including an overview of the specific tax information you need to collect from your contractors.

How do I convert an independent contractor in New Zealand to an employee?

Occasionally, remaining compliant with classification regulations means you need to convert a contract to an employee. This often happens when a company wants a contractor to transition into a permanent role or when a company wants to extend employee benefits to a contract worker. 

The first step is understanding when you should convert a contractor into an employee. Then, you'll need to:

• Write an employment agreement 

• Begin making the required tax deductions, including PAYE, student loan support, child support, KiwiSaver, and the Employer Superannuation Contribution Tax (ESCT)

• Keep your employee records in line with New Zealand's Employee Relations Act of 2000 and the Holidays Act of 2003.

Sign up with Remote’s contractor management services, and you can avoid the hassle of handling the conversion process yourself. Remote can easily manage taxes, payroll, and benefits for new employees within the same platform 

The fastest, easiest, safest way to hire international contractors

If you’re new to hiring independent contractors, it can be challenging to manage the various processes involved — onboarding, figuring out taxes, payroll, benefits, and ensuring compliance with local labor rules. 

Remote's flexible contractor management platform simplifies all of that and more. From fast and easy payments to automating tasks like onboarding and invoicing, Remote lets you get back to focusing on your business.

Our team of employment experts can teach you how to develop a fail-safe plan for hiring and managing remote workers in New Zealand and beyond, with contracts that guarantee compliance with local tax regulations wherever you do business.

Remote makes it easy to hire, pay and manage your global contractors!

If you’re ready to start onboarding contractors in New Zealand, sign up for Remote's contractor management services today!