Once you have enabled the contractor management function within your Advanced Settings, you will be able to add and pay independent contractors within your business.
For more information on adding a new contractor, refer to the Adding a Contractor support article. If you have an existing employee who needs to be updated to a contractor, simply open the employee file > Tax Code Declaration page and update the Employment Type to Independent Contractor.
The following employee settings are impacted when the employment type is set to Independent Contractor:
Tax Code Declaration
The tax code and source of payments will be automatically set to WT and Schedular Payments. These fields cannot be edited unless the employment type is changed to another option.
The tax rate must be provided for contractors. This will be used to calculate the PAYE in the pay run.
There is a new option available for contractors 'Registered for GST'. This option should be selected if the employee charges GST on their earnings. When this is selected the pay run will automatically add and calculate the GST amount based on the earnings.
The KiwiSaver enrollment option and ineligibility reason will be automatically set to Ineligible and Working as an independent contractor. These fields cannot be edited unless the employment type is changed to another option.
Pay Run Defaults
The ESCT Rate % will automatically be set to 0.00%. This cannot be overridden as ESCT is not applicable for contractors. The 'irregular employment' option is also hidden for contractors.
The following columns will not contain any values for an independent contractor within a pay run as they are not applicable for contractors:
- Student Loan
If the contractor has been set up as registered for GST in the Employee Tax Code Declaration page, an automatic GST earnings line will be added to the employee earnings. This earnings line is equal to 15% of the non GST exempt earnings. This value can be overridden if required by selecting the override checkbox against the earnings line. GST earnings are not included in the taxable earnings value.
The PAYE calculation also varies for contractors as their tax rates vary. The tax rate entered in the Employee Tax Code Declaration page is used to calculate the PAYE.
Payslips also reflect the contractor information which includes the Tax Code and GST earnings. The GST earnings are paid to the employee with their other earnings. It is the contractors responsibility to report and pay the GST amounts to the IRD.
The IRD Employee Details and Payday Filing reports, report the contractor details such as the Tax Code, KiwiSaver status and schedular payment data. The GST earnings are non taxable and are not included in the schedular payment values.
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