Employee vs Contractor

There are numerous differences between contractors and employees that significantly affect the rights, responsibilities, and obligations of both the farmer as an employer and the farm worker. Understanding these distinctions is critical in maintaining legal compliance and fostering a fair working relationship.

Employers: If you hire someone as a contractor but they should legally be classified as an employee, it can lead to serious financial and reputational consequences. As an employer, you may later be held liable for additional costs, including unpaid PAYE tax, unpaid minimum wage obligations, and unpaid leave and holiday entitlements. Beyond financial liabilities, there is also a risk of incurring penalties from regulatory bodies such as the Inland Revenue Department (IRD) and the Employment Relations Authority. 

These penalties could tarnish your reputation and damage trust within your community or business network. Furthermore, incorrect classification of workers can result in being declined approval to hire workers from overseas in the future, limiting your ability to address labor shortages effectively.

Employees: If you are incorrectly hired as a contractor when you are entitled to be classified as an employee under labor laws, you may face significant disadvantages. For example, you could miss out on your minimum employment rights, which include access to paid annual leave, sick leave, and other legal entitlements designed to protect your welfare.

 As a New Zealand resident, you might also lose your eligibility for the KiwiSaver employer contributions, compromising your long-term savings. Additionally, being misclassified means you may be burdened with paying tax and ACC levies that you otherwise would not need to if correctly employed. This can lead to unnecessary financial strain and a lack of access to the benefits and protections employees are legally entitled to receive.

Both parties should prioritize correctly determining whether a worker falls under a contractor or employee agreement to avoid complications, financial penalties, or loss of benefits. Seeking expert legal or accounting advice can help farmers and workers navigate these complexities and ensure the employment relationship complies with New Zealand laws.