It is important to know if you are an employee or self-employed, because the tax and Accident Compensation laws treat the two groups of people differently. In this article we will look at New Zealand employment guidelines to determine the differences between being employed or self employed.
In order to work out whether you are an employee or self-employed, you can look at the work you do and the way you do it.
The working conditions set out in your contract (or agreed verbally) will determine your status, not necessarily the way you are described.
Self Employment guidelines
If you can answer “yes” to most of the following questions, it will usually mean that you are self-employed:
- Do you decide or control how you do the work? For example: when you take holidays, when, where and what hours you work, the standard or quality of work, how much you get paid?
- Do you invest or risk your own money in the activity in any way? For example: could you sell the business? Do you support the business with your own money? I.e. have you lent it money, or provided any working capital?
- Are you responsible for losses or your own bad management? For example: are you responsible for management and investment decisions for the business?
- Do you provide the major assets or working equipment needed for your job, (not just small tools, work clothing and/or vehicle to get to and from work)?
- Do you provide or pay for your own training?
- Are you responsible for getting the work done? For example: Can you get other people to work with or for you, without needing to get permission from anyone else? Do you pay these people from your own funds? Are you free to do work for other people? Do you advertise on your own account? Do you arrange for someone else to do the job if you can’t (for example, if you are sick)? Does your work contract say you’ll be penalised if you stopped work, or left without completing a particular project? Do you have to correct unsatisfactory work in your own time and at your own expense?
If you can answer “yes” to most of the following questions, you are probably an employee:
- Do you have to do the work yourself, rather than hiring someone else to do it for you?
- Can someone tell you at any time what to do on the job, or when and how to do it?
- Are you paid at a set rate (for example, hourly, weekly, monthly, or per unit of production)?
- Can you get overtime pay or penal rates?
- Do you work set hours, or a given number of hours a week or month?
- Does someone else set the standards for the amount and quality of your sales or output?
- Do you work at the premises of the person you are working for, or somewhere that person decides?
- Are other people who do the same sort of job as you treated as employees?
- Are you under an employment contract (either individual or collective), or any law that says how your relationship with your “employer” should be run?
- Are you prevented from doing work for anyone else?
- Do you have to follow the rules or procedures of the person you are working for?
Casual, short-term, temporary or part-time work
- If you have one or more part-time jobs, or work for a number of different people, you need to go through the questions for each of your jobs.
- Being self-employed in one job does not automatically mean you will be self-employed in any other job you take on.
- You can be an employee and self-employed at the same time. For example, you could be employed as a part-time shop assistant and spend the rest of your time running a business from your home.
Tax for self-employed people
If you are self-employed, you are responsible for your own Income Tax. This means that you need to:
- Notify the IRD, that you are in business
- Complete an Individual tax return (IR 3) each year, showing all your income and expenses, so the IRD can assess the tax due (the IRD will send you a tax pack each year once you tell them that you are self-employed)
- Budget to make regular payments of provisional tax and end-of-year income tax
- Register for goods and services tax (GST) if your turnover (also know as sales or revenue) will be over $60,000 in a 12-month period