Things to consider before you sign an employment contract #2 Employee or Contractor

Here in NZ, the distinction between dental staff being classified as employees versus independent contractors is significant and affects various legal and financial obligations. Here are some of the key differences:

Employee vs. Contractor

1. Employment Relationship: 

• Employee: Works under a contract of service, entitled to benefits such as paid leave, sick leave and other statutory rights
• Contractor: Works under a contract of services, typically more independent and not entitled to employee benefits. 

2. Control:

• Employee: The employer has significant control over the work, including hours, methods, and work location.
• Contractor: Generally has more autonomy in how they perform their work, including setting their own hours.

3. Tax Obligations:

• Employee: Employers are responsible for deducting PAYE (Pay As You Earn) tax and making KiwiSaver contributions.
• Contractor: Responsible for managing their own taxes and may need to register for GST if their income exceeds the threshold.

4. Superannuation:

• Employee: Employers must contribute to KiwiSaver if the employee opts in.
• Contractor: No mandatory employer contributions to KiwiSaver.

5. Legal Protections:

• Employee: Protected by various employment laws, including the Employment Relations Act, which covers minimum wage, holiday pay, and more.
• Contractor: Limited legal protections; contracts are primarily governed by the terms of the service agreement.

Key Considerations

• Nature of Work: The degree of control, independence, and the relationship's nature should guide the classification.

• Intent: Both parties’ intentions should be clear, and contracts should accurately reflect the relationship.

• Legal Advice: It's advisable for dental practices and staff to seek legal guidance to ensure proper classification, as misclassification can lead to legal issues and financial penalties.

Understanding these distinctions can help dental practices manage their workforce effectively while ensuring compliance with New Zealand's employment laws.