You are ready to recruit an extra person into your business, but you don’t know whether you should be hiring an employee or a contractor? There is no right answer here. It depends on your circumstances.
What is the difference?
| Employees | Contractors |
| Ongoing employment contract | Fixed term or casual contract |
| Work set weekly or monthly hours | Work an agreed number of hours |
| You pay PAYE and Kiwisaver on their behalf | Contractors make own tax payments or can request withholding tax to be deducted |
| Use their employer’s equipment | Use their own equipment |
| Get paid for annual and sick leave | Don’t get paid for annual and sick leave |
| Receive ongoing training | Are expected to have the right skills at the time they start |
| Need to be paid regardless of the level of income | Can easily have their contract ended when income drops |
Does your workforce need to be scalable?
Some businesses need to have the ability to increase and decrease the level of their workforce depending on the number of projects acquired. Your work may be seasonal or fluctuate depending on big contracts being won. Primary industries with annual harvesting, or large IT projects fit into this category.
Other businesses need to have a steady workforce. This is required where revenue is smooth throughout the year, or achieves consistent growth. If demand is uncertain, a contractor may remove the risk of ongoing employment costs.
Do you require a short-term specialised skill?
You may have a project in mind that required a specific skill that you will only need for a short period of time. This may be to fulfill a contract that runs for a defined number of months. They will focus only on that particular project and will not be pulled into other areas of the business.
Get the admin right
Whichever you choose, make sure you get the paperwork right, as there are major consequences for getting it wrong. Ensure there is a contract in place before the person starts work, provide a role description and performance criteria, and cover off any health and safety requirements. Take care to pay the person on time, ensuring that you deduct the correct taxes, and record holidays correctly.
Done correctly, the right person can contribute to your business growth. If you are unsure, talk to your business consultant or HR specialist.