Taxation fallout from the jobs bill

By BRIAN FALLOW

WELLINGTON - When is an employee not an employee?

When he or she is an employee under the Employment Relations Bill, but an independent contractor for tax purposes.

One of the thornier issues thrown up by the Government's industrial law reform is how to draw the line between independent contractors and employees.

Much of the concern about people being reclassified as employees under the Employment Relations Bill relates to the tax implications. Will PAYE need to be deducted? Will business costs still be deductible?

At this stage there are no implications. Passage of the bill will not change anyone's tax status.

"The tax definition of employee has not changed. It is a defined term in the Tax Act," PricewaterhouseCoopers partner John Shewan said.

A spokesman for Revenue Minister Michael Cullen said: "Nothing will change with respect to tax when the Employment Relations Bill changes, because there is a separate definition [of employee]. Whether the two should be aligned is a separate issue, which we have not received advice on from the IRD as yet."

Acting commissioner of Inland Revenue Robin Oliver told the Business Herald last month: "In general terms the Employment Relations Bill would include more people [as employees] than would be included under the current law for income tax purposes. Couriers, for example, have been found by the courts to be independent contractors for tax purposes but would probably be employees under the Employment Relations Bill. We will be reporting to the Government about whether they want to align the two."

Mr Shewan said aligning the tax and employment law definitions would be highly complex and could not be done without a lot of research. The generic tax policy process, with its multiple consultative phases, would apply.

Joanna Holden, an employment lawyer with Chapman Tripp, said it was not unusual for the same term to be defined differently in different pieces of legislation. The Human Rights Act, for example, already extends the definition of employee to independent contractors.

The Employment Relations Bill definition of employee would flow through to the Equal Pay Act.

"But it is surprising that the Holidays Act, the Parental Leave Act and other aspects of the minimum code don't seem to have had their definitions amended," Ms Holden said.

"Independent contractors who are classified as employees under the Employment Relations Bill will have rights to challenge dismissals - that will be the main gain they get - and the right to negotiate collectively. But it does not automatically follow that they get the holidays."