Show them who's boss

Ministry of Business, Innovation and Employment

There are over 400,000 self-employed people in New Zealand.  People starting out as independent contractors find it difficult to obtain information on where to start and what their obligations are.

Fledgling contractors get confused around what they are considered to be by government – a sole trader, a company something else?    This leads to further confusion – what needs to be done to ensure they comply with various regulations, whether that is Inland Revenue, ACC, Work and Safety.

The passion and desire to take that first step in building a business can be squashed by the fear of getting things wrong, especially in terms of paying taxes or complying with regulation.

This opportunity is about enabling people to transition to contracting/self-employment with confidence that they are minimising the mistakes that could lead to failure.

Eric’s experience

Eric is an electrician. For the last four years he has been working for a local company doing small jobs on domestic houses.

He is getting bored and sees a great opportunity to do more exciting work while helping the housing situation in Auckland by becoming a self-employed contractor.   For him, it’s the first step to building a business that employs people and provides training opportunities to young people entering the industry.

Eric has contacts that can help him get his first contracts, but when he tries to find out what he needs to do to set himself up as an independent contractor he struggles to find and make sense of information spread across multiple agencies’ websites.

He is worried that unless he gets the correct information he will not understand his obligations to pay his GST, ACC and other taxes.  He is also worried how the health and safety rules will apply once he is on his own.

He just feels that he doesn’t know what he doesn’t know and there doesn’t seem to be one place to go to find the answers.

Problems experienced

New/potential contractors:

  • It is confusing and time consuming researching the various aspects of legislation that refer to self-employed contractors.
  • Sometimes the contractors are not aware of their obligations until an invoice from an agency arrives, placing financial burden and stress on the individual.

Government agencies:

  • If things have been missed or incorrectly set-up by the contractor, it often doesn’t come to light until a payment or levy has been missed.  This takes time both from the contractor and government agency to resolve.
  • In construction and related industires alone, over 70% of small businesses (many single contractors) go out of business in the first 5 years, owing on average $170,000 to Inland Revenue.
  • Multiple agencies answer similar, repeated questions from contractors seeking clarification or information, which is time consuming

Why is this the right time?

The construction industry is likely to be a major growth industry over the next few years as both local and national government seek to address the housing shortage.   It is likely this will generate further interest from people in becoming contractors in this market.

What does success look like

When a person seeks information about the process and obligations of becoming a self-employed contractor, they can go to a single source of truth that provides an easy to read reference guide and points them to the relevant agency for detailed specifics.

Agencies should experience less calls form confused people regarding their obligations and how to proceed.

Ultimately, agencies such as IR and ACC would see less defaulted payments and fewer insolvencies as people are better prepared for their obligations.

A solution to this problem would:

  • Have a single source of information relevant to people seeking to establish themselves as self-employed contractors
  • Links would be provided to the existing information on agency sites for specifics related to that agency