How to pay international contractors in New Zealand
About one in 20 New Zealanders are contractors, which is just over 5% of all employed people, according to Stats NZ. With the rise of the gig economy, many global companies are choosing to hire skilled independent contractors in New Zealand. But before they start working, you need to determine how to pay contractors according to the country’s employment laws. What are the must-knows when it comes to having New Zealand contractors on your team?
Paying contractors in New Zealand might feel familiar if you already pay contractors in Australia, as the countries share similar labor and tax regulations. Still, you need to know the crucial differences between the two countries.
Read our step-by-step guide to learn how to comply with New Zealand’s labor laws, including how to classify, manage, and pay your New Zealand contractors.
Step #1: Classify your workers in New Zealand
There are significant legal differences between independent contractors and employees, which impact the rights and obligations of the employer and the worker.
Misclassifying workers in New Zealand can lead to significant penalties and legal repercussions for employers, including back payments for taxes, holiday pay, and other employment-related entitlements. The misclassified worker could file a complaint or claim with the Employment Relations Authority (ERA) for not receiving the benefits and protections they’re entitled to as part of the employment relationship.
To help employers determine a worker’s classification, the New Zealand courts developed four legal tests: the intention test, the control vs. independence test, the integration test, and the fundamental/economic test. One single test won’t give you the right answer; you need to consider all the points that apply to your situation to help you decide how to classify your workers.
The table below gives an overview of the differences between independent contractors— who can also work as sole traders or be small business owners—and employees.
Contractors
Employees
High level of worker autonomy. Contractors generally enjoy more freedom to decide how and when to complete their tasks.
More guidance from the employer. Employees generally get more guidance from their employer on how and when to do their work.
Workers use their own tools and equipment.
Employees are typically provided with equipment and tools by the employer.
Less integrated into the organization. Contractors tend to be less integrated into the employer’s company, usually working remotely and independently.
Closely integrated. Employees are more integrated into the company and often work with their team at the office.
No entitlement to company benefits. Contractors are typically responsible for paying their own taxes and don’t receive benefits like minimum wage, overtime pay, vacation pay, public holidays, health insurance, retirement plans, or paid sick leave.
Entitled to company benefits. Employees are entitled to company benefits and protections, including bereavement leave and parental leave, and they don’t have to worry about settling payroll tax and social security contributions on their own.
Defined-period contracts. Contractors are usually engaged for a specific project or a defined period of time.
Indefinite contracts. Employees are typically hired on indefinite contracts, with guaranteed severance pay upon termination.
More risk. Contractors typically assume more risk and liability for their work.
Protection from work-related liabilities. Employees face no risk of loss and are generally protected from liability for work-related issues.
Subcontracting is allowed. Contractors have the option to subcontract some of their work to another person or business.
No subcontracting. Employees are expected to perform their own tasks and cannot delegate responsibilities without company approval.
Step #2: Determine the best way to pay your contractors in New Zealand
Before you enter into a contracting arrangement with a New Zealand contractor, you need to figure out how you’ll pay them. In the era of remote work, there are more options than ever available:
- Wire transfer: Also known as bank wires, bank transfers, or credit transfers, this option is a traditional and secure method of transferring funds to your contractor’s bank account in New Zealand. However, international bank wires may involve higher fees and longer processing times.
- International money orders: You can send a money order online through a company like Western Union, and the independent contractor can deposit it into their bank account. While this option is secure and traceable, it’s not the most convenient or cost-effective method since the process can be slow and come with fees and exchange rates.
- Online payment providers: Payment platforms like PayPal, Wise, and Stripe are popular choices for international payments that offer fast transfers and lower fees compared to traditional bank transfers. But, you still have to account for fluctuating exchange rates and some extra fees.
- Global payroll services: Using a global payroll service streamlines the payment process and makes it easy to comply with New Zealand’s labor and tax regulations. With a platform like Rippling, you can pay your New Zealand contractors alongside the rest of your global workforce.
Step #3: Use global payroll software to process payments for New Zealand contractors
Among the different options for paying New Zealand contractors, using a global payroll service is the simplest and most efficient way to go.
With Rippling, you can quickly pay international contractors around the world without waiting on currency conversions.
Step #4: Ensure tax compliance when paying New Zealand contractors
Whether or not you need to deduct income taxes from New Zealand contractors’ pay depends on the contracting arrangement.
Suppose you hire workers on a contract-for-service basis and send them schedular payments. In that case, you need to deduct taxes from their earnings—unless they have a certificate of exemption and aren’t being paid under a labor hire arrangement by a labor hire business, or they have a 0% special tax rate certificate. You don’t need to make any other deductions, as contractors are responsible for taking care of their KiwiSaver and student loan deductions.
Contractors receiving schedular payments have to fill out an IR330C form (a tax rate notification for contractors). This tells you what income tax rate to deduct from their schedular payments. If they don’t give you an IR330C, you need to deduct tax at either the 45% non-notified rate or 20% if the contractor is a non-resident of New Zealand.
If you hire independent contractors and don’t send them schedular payments, then you don’t need to deduct taxes from their earnings. When filing their own taxes in New Zealand, contractors usually need:
- An IRD number (a unique number issued by Inland Revenue Department)
- Goods and services tax (GST) registration if they earn more than NZ $60,000 a year
- Withholding tax registration
Some employers have written independent contractor agreements stating they will treat their payments as schedular payments and deduct tax on their behalf. In this case, you’d need to register as an employer and treat the contractors as workers receiving schedular payments. These contractors would also have to fill out an IR330C form.
No matter the contracting arrangement, you need to keep records of the person or company and how much you pay them, according to Inland Revenue. These records need to be kept in New Zealand for seven years and include:
- Wagebook information
- Completed IR330 and IR330C forms
- Letters from the Inland Revenue Department asking you to change your employee’s tax code or rate
Effortlessly manage contractors around the world
It's never been easier to expand your global workforce. With Rippling, you can pay international contractors in New Zealand and across the globe in one system.
Frequently asked questions about running payroll for contractors in New Zealand
Do you need to withhold taxes when paying contractors in New Zealand?
Yes, you do need to deduct taxes from contractors receiving schedular payments. Some exceptions exist, including if the contractor has a certificate of exemption or a 0% special tax rate certificate. If you don’t send schedular payments to contractors, then you likely don’t have to withhold any taxes.
Does the New Zealand minimum wage apply to independent contractors in New Zealand?
No, the New Zealand minimum hourly rate does not apply to independent contractors. Employment rights and minimum wage laws are specifically for employees, and independent contractors typically negotiate their rates and terms with the business hiring them.
Do New Zealand contractors get benefits?
No, independent contractors aren’t covered by most employment-related laws, meaning they aren’t entitled to benefits like annual leave, public holidays, and paid sick leave.
General civil law determines most contractors’ rights and responsibilities. For example, everyone in New Zealand—including contractors—is protected by the Accident Compensation Corporation (ACC), and contractors can choose between ACC’s standard CoverPlus or CoverPlus Extra.
ACC gets a summary of contractors’ earnings from their income tax return and combines that information with the contractor’s Classification Unit (CU) to calculate the contractor’s ACC levies.
Can you pay contractors in New Zealand in your home currency?
It's best to pay New Zealand contractors in their home currency, the New Zealand dollar. However, you may be able to pay contractors in your currency if they agree to it in writing.
Many international payment providers, like Rippling, support contractor payments in either New Zealand dollars or your currency.
Can you manually pay contractors in New Zealand?
Yes, you can manually pay contractors in New Zealand using payment methods such as wire transfers, online payment platforms, or even cash. But manual payments often involve extra admin work and are less efficient compared to global payroll software.
Manually processing payments also comes with some big risks:
- Compliance: Manual payment processes come with the risk of human error and inaccuracies, which can lead to compliance issues with the New Zealand government.
- Security: If you don’t handle contractor records in a secure, confidential manner, sensitive information can easily be lost, stolen, or misused.
- Contractor experience. Manually paying contractors can be inefficient, often lacking transparency about what exactly they're being paid for and when they'll get paid.
By automating your payroll, you can reduce manual work, avoid headaches, and pay your contractors quickly and compliantly.
How do you turn a contractor into an employee in New Zealand?
Converting a contractor into a full-time employee involves a change in the working relationship and new legal obligations. To adhere to New Zealand employment laws, you’ll need to create an employment agreement and make all the necessary deductions. These include pay-as-you-earn (PAYE), student loan support, child support, KiwiSaver, and the employer’s superannuation contribution tax (ESCT).
You’ll also need to keep accurate employee records for wages, time, holidays, and leave in compliance with the Employment Relations Act 2000 and the Holidays Act 2003.
Rippling and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, accounting, or legal advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.
