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Alternatives to hiring an employee
If your business needs extra help, but you’re not entirely sure you have the budget or enough work to justify hiring a permanent employee, you could consider getting a contractor or unpaid intern/volunteer.
Deciding what type of help to get should depend on a number of factors, including your requirements, investment level and budget.
Difference between employees and contractors
Many small businesses think that employees and contractors are the same. They’re not, and it’s important to understand how they are distinct because you have different obligations to them and they need to be treated differently.
The main difference between an employee and a contractor is that employees work for you. Contractors work for themselves.
This table explains some of the more obvious ways to work out who is an employee and who is a contractor.
| Employees | Contractors |
|---|---|
|
Work for you directly and can be told what to do, when to do it, and how to do it. This includes people working in a triangular employment situation. Triangular employment situation(external link) — Employment New Zealand |
Decide when and how they do the work and can employ other people to help them finish it. |
| Work a set number of hours per week or month, and get paid overtime when they work extra hours. | Are responsible for getting the work done to the required standard in the agreed time frame. |
| Work where you tell them to, using equipment you provide. | Generally own — and take care of — their own assets and equipment. |
| Have an employment agreement with you. | Run their own business, advertise their services and are free to work for other people. |
| All employees have minimum employment rights under employment laws, for example the minimum wage, annual holidays and other leave entitlements. Employees have rights to lodging personal grievances. The employer must keep records of the employment agreement, employees’ wages, time, holidays and leave records. |
Contractors are not covered by most employment-related laws. This means they do not get entitlements such as annual holidays, sick leave and cannot lodge personal grievances. |
| Require employers to pay their PAYE and KiwiSaver for them. |
Contractors pay their own tax and ACC levies. |
Find out what you know about hiring and managing people.
Contractors
Hiring a contractor can seem like an appealing option for many businesses because there are no long-term commitments. However, contractors aren't suitable for every role and you need to carefully consider what they will — or won’t — do for your business’s growth.
In general, hiring a contractor might be a good idea if you:
- require a specific skill that is otherwise unavailable
- know you’re only going to need this kind of help for a finite period
- are not trying to build a permanent team with their skills.
This table outlines some of the advantages of using a contractor, as well as other things you should be thinking about:
| Advantages | Considerations |
|---|---|
|
You don’t have to commit to providing an ongoing salary or benefits. You are not responsible for their tax and ACC levies. You do not have to keep records of their wages, times, annual holidays and leave entitlements. |
Contractors may complete work somewhere other than your place of business. This means you’ll need to trust that they’ll get the job done to the required standard and deliver on time. |
| You can hire them when you need them. | They may have other work commitments and might not be available when you need them. |
| They’re responsible for their own permits and licenses. | You may not get the same sense of loyalty out of them as employees. |
| They’re experienced and require little training, if any. | Written agreements with contractors have to be carefully considered. For example, you may need clarifications around copyright ownership or legal liabilities. |
Case study
Keeping contractors safe
Judy owns a graphic design business and has a fixed-term contract to refresh a bank's website. She mainly works from home, but sometimes uses the bank’s head office.
As a contractor, Judy is unsure who's responsible for her health and safety. The bank's administrator tells her they have to take practical steps to ensure a safe work environment. This includes training in what to do in an emergency and making sure loose cables are out of the way.
Note: What an employer needs to do to ensure workplace safety depends on the type of work involved. If Judy worked on a fishing vessel, for example, the employer would have to do much more.
Unpaid interns and volunteers
If you have a specific job to do that could help an inexperienced person gain new skills and improve their employment prospects, you might be able to hire an unpaid intern or volunteer. Offering an internship or volunteer position isn’t just a way to get free help — you need to be sure that the person doing the work will benefit from it, even if they’re not being paid.
Typically, unpaid internships and volunteer positions are best suited to businesses that:
- have specific jobs to do that will give someone new skills or opportunities they wouldn’t otherwise get
- offer services that give back to the community.
This table outlines some of the advantages of using an unpaid intern/volunteer, as well as other things you should be thinking about:
| Advantages | Disadvantages |
|---|---|
| They often have a lot of passion and can bring fresh ideas to the business. | They need to be kept safe and given the same health and safety training or equipment as any other staff member. |
| They can free up your time, or the time of other staff. | Training them can take more time than you initially planned for. |
| They can be good sounding boards for new ideas, products or services. | A volunteer can leave at any time. |
| They often have rich and diverse experiences. | You can’t pay them, but you can give them a koha or gratuity. Make sure they clearly know this is not payment. |
| They can be grateful and appreciative of learning new skills. | Unpaid internship positions usually only last between 6 weeks and 12 months. |
Best practice when taking on an unpaid intern/volunteer is to:
- Detail in writing how the unpaid internship/volunteer will work. Make it absolutely clear to the person in writing not to expect payment or any other reward so that there is no misunderstanding.
- Be explicit that the position will not lead to work.
- Avoid having the unpaid intern/volunteer do work which is integral to the business, such as work that an employee would normally do.
- Limit the duration of work and the hours worked by the unpaid intern/volunteer. The longer a person volunteers and the more hours they work, it’s more likely they are to be an employee.
- Keep a record of how long the internship/volunteer position lasts.
- If appropriate, give them a reference once the position ends.
There are many organisations that specialise in matching businesses with unpaid interns/volunteers. Many of them are free and they try to make a good fit between both parties, so they’re worth contacting. Search online to find one in your area.
