Tricky tax rules for casual work

To employ or not to employ? That is a key question often asked by farmers and growers as the major seasonal tasks that require extra hands loom.
The issue at stake is one of paperwork and tax compliance.
Taking on casual labour to help out, even for one or two weeks, means you are legally taking on employees.
Thus, the farmer/grower is legally required to complete all the paperwork normally involved in employing people, including registering them, deducting PAYE, ACC and paying them holiday pay.
A casual is officially defined as someone engaged in casual seasonal work on a day-to-day basis, for up to three months - they have their own tax code: CAE.
Any longer than three months and they're considered a permanent employee.
The only way to avoid the extra paperwork of taking on casuals is to hire contractors - self-employed contractors - effectively removing the employer burden from the grower's shoulders.
There is a compliance issue to consider. In using a contractor, growers, as taxpayers, must deduct withholding tax from payments to the contractor (now described as schedular payments).
The withholding tax rate on payments for agricultural contracts for maintenance, development or other work on farming or agricultural land is 15 per cent.
No deduction is required in cases where the contractor is a company, or holds a current Certificate of Exemption (IR331).
What you need to know
This seems simple enough but it can get muddy around the definitions of types of work that qualify for withholding payments - which growers as employers need to watched carefully.
For example, many of the types of work that qualify for withholding payments - such as seasonal jobs - could also fall within the salary and wages section.
But, just because you send some employees out to do harvesting for the neighbour, or some vine maintenance work, it does not remove them from the PAYE regulations and reclassify them as withholding tax payments.
The key issue is the way in which the worker is hired, either it is:
A contract OF service (employee) or
A contract FOR service (contractor).
You need to be aware of the rules for determining if a person is an employee, or a self-employed contractor. Get it wrong and there can be considerable outstanding taxes penalties and Accident Compensation levies.
The Inland Revenue Department website 'Becoming an employer: Who is an employee or contractor?' provides examples to assist in determining the status of the person.
For example, a person is generally self-employed if they:
- Decide or control how they do the work.
- Decide when they take their holidays.
- Decide when, where and what hours they work.
- Decide the standard or quality of work.
- How much is paid and when.
- Invest or risk their own money in the activity in any way.
- Provide the major assets or working equipment needed for the job (not just small tools, work clothing and/or vehicle to get to and from work).
- Provide or pay for their own training.
- Are responsible for getting the work done.
Ultimately, taking on an employee means you as the grower/employer call the shots. Whereas with a self-employed contractor, you don't.
So, it depends on whether you want to be boss and deal with the paperwork or whether you're happy hand it all to the contractors, provided they meet the Inland Revenue rules!
Tim Cooney is a partner with BDO Tauranga, part of the BDO New Zealand network of Chartered Accountant and Business Advisory member firms. Tim is also a member of the BDO Rural Special Interest Group.

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