accounting-r-us

Securing Your Business Finances: The Power of Audit Protection

Tue, 07 May 2024 05:30:55 GMT

Safeguarding your business with Audit protection

Running a business involves countless responsibilities and challenges, and one thing no business owner wants to face is the dreaded audit. It's a nerve-wracking prospect that can cause sleepless nights and financial strain. Audit Protection is designed to provide a safety net, offering peace of mind and financial security when it comes to official audits, inquiries, investigations, or reviews conducted by revenue authorities.

Navigating the Audit Minefield:

Navigating the Audit Minefield can be a daunting task for business owners. The complex maze of audits and reviews by revenue authorities requires careful attention and strategic manoeuvring. Understanding the rules and regulations governing these processes is key to successfully emerging unscathed. With the right guidance and preparation, businesses can navigate through the audit minefield with confidence and ensure compliance with regulatory requirements. By staying informed and proactive, businesses can approach audits as manageable challenges rather than insurmountable obstacles.

Remember, preparation is key when it comes to navigating the audit minefield.

Comprehensive Coverage:

When it comes to navigating the complex world of audits and reviews, businesses need all the support they can get. Comprehensive Coverage is one of the most critical considerations for businesses seeking to protect themselves from unexpected financial blows. Coverage can extend to various tax obligations such as Dividend Withholding Tax, Employer Returns, Fringe Benefits Tax, and GST. By carefully selecting a service that provides adequate coverage, businesses can secure their bottom line and ease the financial impact of audits and reviews.

Remember, it's not just about having coverage; it's about having the right coverage. By staying informed and proactive, businesses can ensure that their coverage remains comprehensive and adaptable to their needs.

Defending the Bottom Line

Defending the Bottom Line is a crucial aspect of any business's financial strategy. The costs associated with audits and reviews can place significant financial strain on businesses. With the right approach, businesses can navigate the audit minefield without compromising their bottom line. One way to do this is by ensuring that financial records are complete, accurate, and up-to-date. Another key aspect is to understand the rules and regulations governing audits and reviews. It's important to stay informed and proactive, anticipating potential issues and having a contingency plan in place. By taking a comprehensive and strategic approach to defending their bottom line, businesses can ensure that they are well-protected against financial blows.

Tax-Deductible Protection

Tax-Deductible Protection represents a valuable option for businesses aiming to safeguard their financial interests. By leveraging tax-deductible protection, businesses can effectively minimise the financial impacts of audits and reviews. This provides an additional layer of defence that can help businesses mitigate potential expenses and maintain their bottom line. Understanding and utilising the tax benefits associated with this protection is essential for businesses seeking to maximise their financial security. Through careful consideration and strategic planning, businesses can take advantage of tax-deductible protection as a key tool in your financial arsenal.

Tax audit protection is a vital element of a sound financial strategy for businesses. By embracing this proactive approach, businesses can shield themselves from unforeseen financial hardships that may arise from audits and reviews. Understanding the tax benefits linked to protective measures is crucial for businesses as they navigate the complex landscape of financial compliance. By integrating tax audit protection as a cornerstone of their financial planning, businesses can fortify their defenses and mitigate potential financial risks.

Ultimately, this proactive approach can provide peace of mind, allowing businesses to focus on their growth and success with confidence in your financial security.

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A new Financial Year - Welcome 2024

Tue, 07 May 2024 03:20:11 GMT

2024

New Year, new plan.

7 Tips.

In the dynamic world of small-to-medium business management in New Zealand, navigating the financial landscape can often feel like embarking on an epic mission. A bit like gearing up for a hike — it’s thrilling, a bit daunting, and definitely requires some prep work. But there’s no one-size-fits-all approach to managing your business finances. Every company is different, and what works for one may not work for another. That’s why it’s important to have an financial professional or Accountant who can help you navigate the landscape and make sure you’re making the best decisions for your business.

Here are seven essential financial strategies that act as your trusty map and compass, guiding you through the ever-changing terrain of business finance with confidence.

1. Building Your Financial First-Aid Kit: Budgeting Basics

In business, having a solid foundation in Budgeting Basics is like having a sturdy toolkit for financial success. It's a compass guiding you through the maze of numbers and transactions, allowing you to navigate the twists and turns with confidence. Budgeting isn't just about numbers, it's about empowering you to make smart decisions, allocate resources wisely, and ensure your financial health stays on track. By building your Financial First-Aid Kit with Budgeting Basics, you're equipping yourself with the tools necessary to weather any financial storm that may arise. With a clear understanding of your budget, you can focus on what truly matters - growing your business and achieving your goals.

2. Tech to the Rescue: Embracing Digital Tools

Using digital tools is like adding a turbo boost to your financial engine. It's about streamlining processes, increasing productivity, and unlocking efficiency. By integrating digital tools into your operations, you're equipping your business with what it needs to get past obstacles and head towards success. These tools aren't just gadgets; they're ready to assist with everything from data management to customer engagement. Embracing digital tools isn't just a trend; it's a strategic move that positions your business for growth and adaptability in the ever-evolving world of business. So stay ahead of the curve and learn how to navigate the digital highway toward your goals.

3. The Art of Financial Forecasting: Looking Ahead

Navigating your business requires having a crystal-clear vision of what lies ahead. Financial Forecasting guides you in the right direction. With Financial Forecasting, you're equipped with the tools to anticipate potential challenges and seize opportunities, meaning you can make informed decisions. By accurately projecting revenues, expenses, and cash flows, you gain a roadmap for success that helps you plan and adapt. Financial Forecasting isn't just about numbers on a spreadsheet; it's about gaining insight and confidence in your business's financial direction.

4. Tax Navigation: Avoiding the Sharks

Navigating Tax can often feel like manoeuvring through a complex maze. It's filled with rules, regulations, and intricate processes that can leave you feeling overwhelmed and uncertain. However, with the right knowledge and resources, the path becomes clearer. Understanding tax requirements and obligations is crucial to ensuring compliance and avoiding penalties. By staying informed and seeking professional assistance, business owners can confidently navigate the intricacies of tax and make informed decisions that benefit their financial health. Remember, knowledge is power, and with the right guidance, tackling tax becomes a manageable task. So, equip yourself with the necessary know-how to forge ahead, knowing that you have the tools to successfully navigate tax.

5. The Value of Professional Guidance: A Financial Compass

Professional Guidance is an essential component of any successful business. It's about having a reliable compass that points towards your goals and helps you navigate the challenges of the financial landscape. Business owners often feel the weight of the world on their shoulders, needing to make decisions that impact the future of their enterprise. Professional guidance can help alleviate that stress by providing the support and expertise necessary to make informed decisions. It's like having a seasoned navigator on board to assist in steering towards success. With professional guidance, business owners can rest easy knowing they have a trusted partner in their financial journey. It's a valuable asset that empowers business owners to focus on what they do best - growing their business - while leaving the financial details to the experts.

6. A Good Business Plan: Your Financial Roadmap

A Business plan is like a roadmap for success, outlining the path that a business intends to take. It serves as a blueprint, guiding you towards their goals and objectives. With a Business plan in hand, you can navigate through the complexities of running a business with confidence and clarity. It's a strategic tool that allows businesses to set priorities, allocate resources effectively, and make informed decisions. A well-crafted Business plan provides a solid foundation on which businesses can build and grow. It's more than just a document; it's a comprehensive guide that helps ensure business success and sustainability. So, whether you're a startup or an established enterprise, investing time and effort into creating a solid Business plan is a crucial step towards achieving your business dreams.

7. A Marketing Plan: How to Get Customers

A marketing plan is a strategic roadmap that outlines the steps for promoting and selling products or services. It is a valuable tool that guides businesses in reaching their target audience and generating successful campaigns. A well-crafted marketing plan incorporates research, analysis, and creativity to identify the most effective marketing strategies. By setting clear goals and objectives, businesses can align their marketing efforts with their overall business objectives. A marketing plan helps ensure a systematic approach to marketing activities, enabling businesses to make informed decisions and allocate resources efficiently. It provides a framework for businesses to evaluate their marketing initiatives and make adjustments as necessary. With a comprehensive marketing plan in place, businesses can confidently navigate the dynamic world of marketing and maximise their chances of success.

In essence, managing the finances of your small-to-medium enterprise in New Zealand doesn’t have to feel too large to handle. With these strategies in backpack, you’re well-equipped to tackle the financial challenges and opportunities that lie ahead.

Remember, every great business begins with a single step – or in this case, a solid financial plan.

How Bookkeepers Underpin SMEs in New Zealand

Mon, 08 Apr 2024 04:41:24 GMT

The five ways bookkeeping services can bring success on SMEs in New Zealand.

In the world of small-to-medium enterprises (SMEs), where innovation meets business, financial management often appears as a blur on an otherwise clear horizon. It’s here, amidst the numbers and reports, bookkeeping services can guide your business to success and stability.

Bookkeeping services are a vital part of any business, but they can be especially helpful for SMEs. As a small business owner, you have to wear many hats and manage multiple responsibilities. It’s easy to get overwhelmed by the sheer volume of tasks that need your attention on a daily basis. This is where bookkeeping services come in handy—they provide an extra set of eyes and hands to help you stay on top of things. They can help you make sense of your financial information, so that you can make better decisions about how to run your business. They can also provide you with the tools and knowledge to manage risk effectively, which is essential for any SME owner looking to grow their business. They can help you make sense of your financial information, so that you can make better decisions about how to run your business. They can also provide you with the tools and knowledge to manage risk effectively, which is essential for any SME owner looking to grow their business, help you make sense of your financial information so that you can make better decisions about how to run your business. They can also provide you with the tools and knowledge to manage risk effectively, which is essential for any SME owner looking to grow their business.

Bookkeeping, while seemingly mundane, can be the key to smooth business practices — bringing wisdom, efficiency, and more time for you to work your business.

Let’s explore

1. The Crystal Ball of Financial Insight

Embarking on a business journey without a clear map can lead you into the murky waters of uncertainty. Bookkeeping services shine a light on your financial position, offering you a bird's-eye view of your fiscal landscape. This insight is like having a seasoned navigator at the helm or your finances, ensuring you can anticipate twists and turns, and adjust accordingly. With such clarity, the path to growth and stability becomes not just visible but navigable.

2. The Shield Against Tax

Consider bookkeeping as your fortress against the up's and down's of taxation. With tracking and reporting, bookkeeping ensures your financial records are straight, keeping out of control tax obligations at bay. This forward planning provides peace of mind, allowing you to focus on your business rather than the brewing storm of tax season.

3. The Alchemist’s Dream: Turning Data into Gold

In the world of business, time is gold. Bookkeeping services help to unlock this potential, transforming time-consuming financial management tasks into efficiency and productivity. Freed from the day to day work of ledger management, you do what truly matters—innovating, expanding, and engaging with your clientele. This alchemy of time management is indeed the kind of magic every business looks for.

4. The Time-Turner: Freeing Up Your Most Precious Resource

Command over your cash flow is pivotal in keeping your business buoyant. Bookkeeping highlights the ebb and flow of your finances, ensuring you’re never caught off guard by a rogue tax bill, invoice, or payroll run. The best way to predict the future is to create it. With accurate bookkeeping, you can see where your business is headed and make informed decisions about how to get there. You’ll be able to identify trends in your cash flow, sales, and expenses that will help you plan for growth or prepare for downturns. Informed by accurate cash flow analysis, you not only keep your business afloat but also moving smoothly toward your financial goals

5. The Safety Net for Risk Management

As a business owner, you know that risk is an inherent part of the game. But what if there was a way to minimise your exposure and protect yourself from unexpected financial losses? Bookkeeping services provide this safety net by identifying potential risks early on and helping you develop strategies for mitigating them.

In the adventure of running an SME in New Zealand, it’s essential to have the right companions by your side. Bookkeeping services, with their ability to transform data into insight, time into opportunity, and complexity into clarity, are indispensable.

Company Vehicle - what can I claim?

Fri, 09 Feb 2024 00:45:00 GMT

Easy Guide to Claiming Company Vehicle Expenses for Small Businesses

If you run a small or medium business in New Zealand and use a vehicle, it's really important to know what vehicle expenses you can claim on your taxes. This will help you save money and manage your business finances better. This guide is a simple walk-through of everything you need to know about claiming expenses for your company vehicles.

Understanding What Expenses You Can Claim

For your company vehicles, there are several expenses you can claim. These include:

Fuel Costs : Money spent on petrol or diesel for business trips can be claimed.
Maintenance and Repairs : If your vehicle needs a service or repair, these costs are claimable as long as they're for business use.
Insurance and Registration Fees : The costs for insuring and registering your company vehicle can be claimed.
Lease Payments : If you lease your vehicle, the lease payments are claimable.
Depreciation : As your vehicle gets older, it loses value. This decrease in value, known as depreciation, can also be claimed.

It's important to remember you can only claim these expenses when the vehicle is used for business purposes.

Distinguishing Between Business and Personal Use

Many business owners use their vehicles for both personal and business purposes. It's crucial to separate these uses for tax purposes. The best way to do this is by keeping a logbook. This logbook should include:

Date of each trip
Distance traveled
Reason for the trip (how it's related to your business)

This logbook should be kept for at least three months every three years. It helps you calculate the percentage of vehicle use that is for business, and therefore, the percentage of costs you can claim.

Claiming Depreciation

Depreciation is the loss in value of your vehicle over time. To claim this, you need to use the depreciation rates set by the government. These rates vary depending on the type of vehicle and its initial value. Calculating depreciation can be a bit complex, so you might want to get help from an accountant to make sure you're doing it right.

GST Claims on Vehicle Expenses

If your business is registered for GST, you can claim the GST part of your vehicle expenses. This includes GST on buying the vehicle and ongoing costs like fuel and maintenance. But remember, just like other expenses, you can only claim the GST for the business use part of these costs.

Financing: Buying vs Leasing Vehicles

How you finance your vehicle also affects what you can claim. If you buy a vehicle, you can claim depreciation along with other costs. If you lease, you can claim the lease payments. But, if you also use the vehicle for personal reasons, you can only claim the part of the payments that are for business use.

Keeping Good Records

Keeping all your receipts and records for vehicle costs is super important. Make sure your logbook is up to date with your business trips. This helps you claim the right amount and also show proof to the tax department if they ask.

Understanding and correctly claiming expenses for your company vehicles can really help your small business save money. Keep detailed records, know how to separate business and personal trips, and stay updated on tax rules. If things seem confusing, it's always a good idea to talk to an accountant for advice. They can help make sure you're claiming everything correctly and getting the most benefit for your business. Remember, every dollar you save on taxes can be reinvested into growing your business, so it's worth taking the time to get your vehicle expense claims right.

New Year, New Opportunities: Strategic Financial Planning for Small Businesses in January

Fri, 12 Jan 2024 00:30:01 GMT

Thinking forward, planning ahead...

January, often seen as a month of new beginnings, presents a prime opportunity for small businesses in New Zealand to set the tone for the year ahead. After the hot, sunny, sandy holiday season and the typical slowdown in sales, this is the perfect time to refocus and strategise. In this article, we will explore effective financial planning strategies that small businesses can employ to navigate the unique challenges of January and lay a strong foundation for the year ahead.

Reviewing and Reflecting on the Past Year

The start of the year is ideal for conducting a thorough review of the previous year's financial performance. Analyse your income, expenses, profit margins, and overall cash flow. Identify what strategies worked well and areas where improvements are needed. Reflect on the goals set at the beginning of the previous year and assess how well they were achieved. This evaluation will provide valuable insights into your business's financial health and help in setting more informed goals for the new year.

Setting Realistic Financial Goals

With the insights gained from the review, set realistic and achievable financial goals for the year. These might include increasing revenue, reducing costs, expanding your customer base, or venturing into new markets. Ensure that these goals are Specific, Measurable, Achievable, Relevant, and Time-bound (SMART). Having clear financial targets gives direction to your business activities and helps in measuring progress throughout the year.

Budgeting and Cash Flow Management

January is the perfect time to create a budget for the new year. Based on your financial review and goals, allocate funds to different aspects of your business, such as marketing, inventory, staffing, and development. A well-planned budget will help in managing your finances effectively and prevent overspending. Additionally, focus on cash flow management, especially considering the post-holiday season slowdown. Plan for any potential shortfalls and explore ways to maintain a healthy cash flow, such as adjusting payment terms with suppliers or clients, or considering short-term financing options if necessary.

Preparing for Tax Season and Compliance

January also marks the beginning of the tax season. Organise your financial records and ensure all documentation is in order. Familiarise yourself with any tax changes that might have occurred and how they could affect your business. Preparing early for tax filing can help avoid last-minute rushes and errors. Additionally, ensure your business is compliant with all regulatory requirements, updating any necessary licenses or permits.

Embracing Technology and Innovation

Embracing technological advancements can significantly improve your business efficiency and financial management. Consider adopting new financial software or tools that can streamline accounting processes, improve data accuracy, and provide valuable financial insights. Staying abreast of technological trends can also open up new opportunities for business growth and innovation.

To Sum Things Up

January offers a fresh start and a chance to build a solid financial foundation for the year ahead. By reviewing past performance, setting realistic goals, managing budgets and cash flow, preparing for tax season, and embracing technology, small businesses in New Zealand can navigate the challenges of this month and set a successful trajectory for the rest of the year. We're committed to supporting your business through these crucial steps, helping you achieve financial stability and growth in the new year.

Embracing the Holiday Season: Financial Tips for Small Businesses in New Zealand

Fri, 15 Dec 2023 00:30:00 GMT

Planning for 2024

November in New Zealand is where everyone starts to think about the holiday season, a crucial time for small businesses. While this period offers growth opportunities, it also presents unique financial challenges. At Accounting R Us, we understand the importance of this season and are here to guide you with essential financial tips to maximise your success and prepare for the typically slower sales in January.

Managing Cash Flow During Peak Season

With the holiday rush, your business might experience a surge in sales. Efficient cash flow management is key to capitalising on this. Begin by creating a sales forecast, drawing insights from past performance and current market trends. This will enable you to allocate resources wisely, ensuring you have sufficient inventory without overstocking. Also, pay close attention to the timing of your cash inflows and outflows. Swift invoicing and payment follow-ups are crucial for maintaining a healthy cash flow. In anticipation of the slower months of January and February, consider setting aside a portion of your holiday revenue. This foresight can help you manage expenses during these quieter periods. Additionally, explore short-term financing options to bridge any cash flow gaps.

Budgeting for Extra Expenses

November brings additional costs, including holiday inventory, marketing, and seasonal staff. It's vital to budget for these expenses to avoid financial strain. Review your expenses from the previous year, adjusting for your current business situation. Allocate a specific budget for each category and adhere to it. This disciplined approach will prevent unnecessary debt and keep your finances stable. Moreover, in preparation for the post-holiday sales decline, it's wise to limit non-essential spending and conserve resources for the leaner months ahead.

Tax Planning for Year-End

Year-end tax planning is crucial, especially in New Zealand where business activity can fluctuate. Ensure you're making the most of tax deductions by meticulously tracking all business-related expenses, including those incurred during the holiday season. Consider deferring some income into the next fiscal year, especially if it helps lower your current year's tax liability. This strategy can be particularly effective in New Zealand, where January might see reduced business activity. Engage with a professional accountant to explore strategies tailored to your business and the unique financial landscape of New Zealand.

Preparing for the Post-Holiday Slowdown

In New Zealand, the post-holiday period of January often sees a slowdown in business activity. To prepare for this, it's crucial to plan ahead.

CONSIDER:

Diversifying your product or service offerings to appeal to a broader market during these months.
Use this quieter period to strategise and plan for the rest of the year.

It's an opportune time to review business processes, train staff, and implement improvements.

The holiday season is a pivotal period for small businesses in New Zealand, setting the stage for both immediate success and future sustainability. Proper financial management during this time is key to navigating the festive season and the slower months that follow. By managing cash flow, budgeting wisely, engaging in strategic tax planning, and preparing for the post-holiday slowdown, your business can thrive during this dynamic time.

Let's embrace the holiday season with confidence and plan for a prosperous new year!

Navigating Changes: The Impact of New Government Policies on Small Businesses in New Zealand

Mon, 27 Nov 2023 21:11:18 GMT

The changing landscape of New Zealand business

The introduction of a new government often brings about policy changes that can significantly impact the small business landscape. For entrepreneurs and small business owners in New Zealand, understanding and adapting to these changes is crucial for continued success and growth. In this article, we'll explore the potential impacts of new government policies on small businesses, offering insights and strategies to navigate this evolving landscape effectively.

Taxation and Regulatory Changes

One of the most direct ways government policy changes can affect small businesses is through alterations in taxation and regulatory frameworks. New policies might include changes in tax rates, compliance requirements, or business regulations. For instance, an increase in corporate tax rates could impact profitability, while changes in environmental regulations could necessitate adjustments in operations. It's essential for business owners to stay informed about these changes and seek professional advice when necessary. Adapting to new tax laws and regulations swiftly can help businesses avoid penalties and leverage any new tax incentives or relief programs that may be introduced.

Government Support and Incentives

New governments often introduce support programs and incentives to boost economic growth and support small businesses. These can include grants, low-interest loans, or subsidies. For small business owners, understanding and accessing these resources can be a game-changer, especially in challenging economic times. Keeping a close eye on government announcements and actively seeking out information on available support can provide businesses with much-needed financial assistance and opportunities for growth.

Employment and Labor Laws

Changes in employment and labor laws can have a profound impact on small businesses, which often operate with limited staffing. New policies might affect minimum wage levels, employee rights, or hiring practices. These changes can influence operating costs and require adjustments in human resource management. Small business owners should review their employment practices and policies in light of any new legislation to ensure compliance and to manage their workforce effectively.

Trade and Market Access

For small businesses involved in international trade or reliant on imported goods, changes in government policy can significantly impact market access and trade conditions. This can include alterations in trade agreements, tariffs, and import/export regulations. Understanding how these changes affect your business's supply chain and market access is vital. Adjusting sourcing strategies and exploring new markets can help mitigate any negative impacts and capitalise on new trade opportunities.

In Summary

The introduction of a new government and its policies can present both challenges and opportunities for small businesses in New Zealand. Staying informed, seeking professional advice, and being adaptable are key to navigating these changes successfully. As a small business owner, proactively responding to policy shifts can help you maintain stability and position your business for growth in the evolving political and economic landscape. At Accounting R Us, we are dedicated to supporting you through these transitions with our expert advice and tailored financial services. Together, we can turn these changes into opportunities for your business's success.

Are you entertainment expenses tax deductible or not?

Thu, 19 Oct 2023 23:36:21 GMT

Deciphering the Tax Implications of Your Entertainment Expenses in New Zealand

In the realm of business expenses, understanding which entertainment expenses are tax-deductible and how they intersect with fringe benefit tax (FBT) is crucial. Let's break it down for you.

Understanding the Fringe Benefit Tax (FBT) Link :

When an entertainment expense offers benefits relished by employees, it might attract the fringe benefit tax (FBT).

Broadly, there are three classifications for business entertainment expenses:

Fully Deductible & Exempt from FBT:

These are expenses that are entirely aligned with business activities. They are 100% tax-deductible and free from FBT considerations.

They often cover:

Meals purchased during business trips.
Refreshments at conferences or seminars lasting over 4 hours.
Light meals for senior managers as part of their job responsibilities.
Business promotional activities.
Entertainment that's secondary at public functions or trade displays.
Business promotional giveaways.
Entertainment aimed for a reviewer's assessment.
Discounted entertainment, provided the business typically offers entertainment at market rates.
Entertainment experiences outside New Zealand.

For specific details and exclusions, refer to the IRD Website.

Half Deductible & Exempt from FBT:

If the entertainment expense has a personal or private component, it's typically 50% deductible and doesn't attract FBT. Even if the private aspect seems to be more or less than half, the 50% deduction applies.

Some instances are:

Attending cultural or sports events.
Business-associated use of a holiday home.
Chartering a boat along with catering for guests.
Social events provisions (e.g., parties) or amenities for top-tier staff.
Business-related gifts of consumables enjoyed privately by recipients.
Ancillary costs related to 50% deductible entertainment, such as hiring glasses or catering staff for an event.

For a comprehensive list and exclusions, check the IRD Website.

Fully Deductible but Subject to FBT:

When employees enjoy entertainment benefits because of their professional roles, these expenses are 100% deductible. However, they do incur FBT. Examples include performance rewards like dining vouchers or short getaways.

Being informed about these classifications can ensure you're making the most of your deductions while adhering to New Zealand's tax regulations. Always consult with a tax professional for specific guidance tailored to your business scenario.

Employee vs Contractor - know the difference

Wed, 20 Sep 2023 00:15:24 GMT

Understanding the difference of being a contractor or an employee

There are many differences between contractors and employees that affect the rights and obligations of the business and the worker.

An employee works in your business and is part of your business.
A contractor is running their own business.

Depending on the type and nature of business, you may have employees or contractors, or both. It is important to review which are which to understand your employee and tax obligations. No further discuss the tax obligations contact us.

To make the correct decision you must focus on the real nature of the working relationship not just the label the parties have given it.

The courts have developed some legal tests to help you tell the difference, they are:

Intention test
Control vs independence test
Integration test
Fundamental/economic reality test

Intention Test

The intention of the working relationship is relevant, but it does not on its own determine the true nature of the relationship between them. Intention is typically indicated in the written agreement between the parties.

Employee

- An employee MUST have an employment agreement (contract of service) in writing.

Contractor

- has a ‘contract for services’ with a principal, rather than an employment agreement.

Holiday pay

- A contractor does not have to be paid holiday pay, whereas an employee does.

Getting paid on public holidays

- A contractor does not get paid extra for working on a public holiday.

Control vs Independence Test

Employee

- greater control exercised over the worker’s work content, hours and methods.

Contractor

- greater freedom to choose who to work for, where to work, the tools used and so on.

Control over work, time, location – a Contractor controls the work to be done while an employee largely directed by the employer.
Set hours - A contractor generally has more discretion regarding how much time is spent at work compared to an employee who will likely have set times and days to be at work.
Control over their availability - A contractor generally has more control over their own availability while an employee generally has to request permission from their employer to take a day off, or to go on leave.
Supervision and direction - A contractor has their own “plan” of what work to do each day and is usually a specialist in their field of work, and so does not need to be closely supervised or instructed how to do their job.

Employees have to complete the work the way the employer specifies. What work is done, where it’s done, how it’s done, and when it’s done are all up to the employer. The employee then completes the work as required.

Contractors are not subject to the same rules. They decide when and how the work is done, so long as it meets the obligations laid out in the contract. For example, a contractor could choose to work three 10-hour days to complete a job, rather than working four 8-hour days.

Integration Test

This test looks at whether the work performed by the employee is integral to the employer’s business. Usually the work performed by a contractor is only an accessory to the business.

A person is more likely to be considered to be an employee of the organisation when:

The type that is commonly done by employees
Continuous (Not a one-off project)
For the benefit of the business rather than for the benefit of the worker.

Works with own equipment

- If the business is responsible for providing the equipment, tools, and other assets required to perform the job, that’s characteristic of an employee and if the worker is providing these items, they are likely a contractor.

Team integration

- A contractor is less likely to be integrated into the team e.g. not invited to company events

Basis of payment

- An employee is usually paid a set amount per period of time, whereas a contractor may be paid by results.

Reimbursed for work related expenses

- An employee is more likely to be reimbursed for work related expenses, whereas for a contractor, these form part of the costs of running their business.

Uniforms

- An employee is likely to wear the employer’s uniform (if it has one) whereas a contractor would supply their own clothes.

Fundamental / Economic Reality Test

The test involves examining the total situation of the work relationship to determine its economic reality. A contractor is a person in business on their own account.

Fees

- A contractor charges a fee for their services, whereas an employee is paid a wage.

Minimum wage

- A contractor paid whatever rate is agreed to. An employee must receive at least the minimum wage.

Pays taxes

- the employer pays PAYE tax and ACC on the employee’s behalf, and the employee is paid net wages or salary. A contractor generally pays their own tax directly to the IRD. In special situations the person the contractor is contracted to may deduct withholding tax (WT) on their behalf.

GST registration

- A contractor must register for GST if earning over $60,000.

Have employees

- A contractor can often get someone else to do the work instead of him/her either by subcontracting the work, or employing their own staff.

Mainly working for one entity

- A contractor may work for multiple principals at the same time e.g. a builder having contracts to do work for Company ‘A’, Company ‘B’ and Company ‘C’.

Advertises for work

- An employee looks for work e.g. answers a job ad looking for a worker, compared to a contractor who often advertises his/her services.

Invoices

- A contractor usually issues invoices setting out their fees or charges in order to get paid. An employee usually gets paid automatically, and receives a pay slip.