Labour markets all over the world are increasingly moving towards flexible and assignment based engagements that allow an organisation to upscale and downscale the workforce as needed. The idea of engaging a contract workforce may sound appealing to your organisation, but if you have never done this before, you’ll find there are many factors to take into consideration. You’ll need resources to manage payroll, taxes and contracts, which can be time consuming and costly to implement. You’ll also need to understand the laws that govern contingent workforce engagements, which can vary from region to region.
While contingent workforces can be economically beneficial, they can be complex to manage without the right experience. That’s where a Contractor Management Organisation (CMO) comes into play. A CMO is responsible for ensuring that your contingent workforce is compliantly engaged, manages your payroll, on-boards and off-boards contractors, provide professional insurance coverage and statutory liability coverage. And the best part is that you’ll have absolute peace of mind that all risk involved has been mitigated.
A contingent workforce is made up of varying engagement types, but the most common types in New Zealand at present are:
- Non-resident contractors
- Fixed term employees
- Casual employees
Here are some requirements that a CMO will be able to manage for you:
#1 – Changes to Schedular Payment Rules
In April 2017, there were a number of changes to the schedular payment rules. The biggest change was the requirement for labour hire businesses to now withhold tax from contractors. The other change was the ability for contractors to elect their own tax rates, rather than using the default rates set by the IRD. These rules apply to all contractors, including sole traders and companies.
The new Labor government has also signaled that other changes are likely for contractors in New Zealand. We would anticipate that more contracting arrangements will begin to fall under the scheduler payment rules, creating a requirement to withhold tax. Using a CMO will ensure that you remain compliant and up to date with any legislative changes.
#2 – Engagement risks – contractors
There can sometimes be a fine line between what is considered a contractor and what is defined as an employee. CMOs can help you define the engagements of your contractors thus clarifying requirements. Engaging contractors carries risk if you are not aware of compliance constraints. The organisation has the responsibility of ensuring that the contractor’s IRD and ACC obligations are met, they’ve taken out the appropriate professional insurances and have the correct right to work in NZ.
#3 – Employment Engagement risks
Fixed term employees and casual staff are the most common type of contingent workers. These are employees that are treated the same and have the same employee entitlements (holiday pay, Kiwisaver etc) as any other permanent worker. However, both engagement types can cause engagement risks for organisations.
Fixed term contracts must have a valid reason for being fixed term, and not permanent. It can also cause issues where fixed term contracts have rolled over multiple times, which may create the argument that an employee should be permanent. For casual employees, a CMO will help to ensure that they are treated correctly and aren’t actually part-time staff.
#4 – Contractor Payroll
When paying contractors, you need to check whether or not they fall under the scheduler payment rule. If they do, it is a requirement to withhold tax from each payment. They must also complete an IR330C form. If they don’t fall into this category, your contractor can be paid as a vendor/supplier and there is no requirement to deduct withholding tax but can elect to voluntarily pay schedular payments (if both parties agree).
#5 – Contractor Insurances
Contractors are required to provide their own insurance coverage, such as Public Liability and Public Indemnity insurance. A CMO can organise the appropriate insurances for your contractors, guaranteeing that your contingent workforce is always sufficiently covered.
The complex nature of contract workforce engagements means that it’s easy to miss something if you are inexperienced. Why take the compliance and financial risks that come with managing it in house? Outsourcing to a CMO like Entity Solutions will ensure that your organisation is always compliant and maximising the benefits of engaging this type of workforce.
Entity Solutions New Zealand can help your organisation navigate the challenging terrain of managing contingent workforces. Contact Mark Hudson, General Manager of Entity Solutions NZ, on +64 4 384 6622 or via email at email@example.com for a discussion about how we can assist.