In general, there are three types of employees. The list below offers an overview of the nature of each relationship and the most common features of the relevant contract.

1. Independent contractors / self-employed contractors: this situation exists when a contractor controls how and when the work is done. Payment is usually made at the conclusion of a job, and the contractor pays their own tax, ACC and insurance, and supplies their own equipment and materials to complete the work. An independent contractor sets their own hours, takes on the risk of profit or loss and can also accept work from other sources.

2. Casual employee: this is when the employer and employee agree that work will be offered when it is available. Sometimes casual employees are engaged on a 90 day trial period, and it is important to record this in an employment contract, as failing to do so means the employer cannot rely on dismissing the employee within 90 days. You should also make sure you update the agreement if the casual employment relationship changes to a more permanent basis, as failure to do so may see you battling the Employment Relations Authority.

3. Permanent employees (either full or part-time): most New Zealand employers take this path, which means that the employees have the full rights of New Zealand employment law. In this situation, the employer controls the hours worked and deducts ACC premiums and PAYE on behalf of the employee. The employer owns (or leases) all equipment needed to carry out the work, and the employee is expected to work solely for that employer and not in any other competing situation. The employer controls the hours worked and takes the profit or loss risk from the business.

Employment law is not an area to cut corners. The Employment Relations Act 2000 and its amendments state that employment contracts are compulsory, and failure to have an agreement means you could face a penalty of up to $10,000. And don't rely on verbal agreements - they often create confusion and problems later down the track with enforcement. We strongly advise you to contact us to check your position. If you fail to warn or dismiss an employee correctly it could be a costly mistake – and not just in terms of money, but also in precious time.