After recording the five thousandth contractor to join on Thursday the 29th July, Crackerjacks is now New Zealand’s largest online contracting hub.

Our local contractor pool has grown from zero to five thousand in less than two years, after launching in late 2008.  The main regions covered include Auckland, Waikato and Wellington.

Tony Wai, Crackerjacks Managing Director, explains that with continuing skills shortages, particularly in the IT industry, Crackerjacks has been a popular option with employers who recruit hard to find skills.  “With over five thousand professional contractors we have a pretty good range of skills on our database.”

Wai explains that even though our unemployment rate has risen in recent times and job opportunities have been anything but plentiful, skills shortages are still a big issue for NZ business. “The problematic lack of skilled professionals has been further compounded by the shortfall of skilled migrants entering the country this year.”

According to the EEO Trust, the immediate skills shortages we’re facing include; IT specialists, Telecommunication technicians, Architectural draughtspersons and Auditors.

Interestingly so, on Crackerjacks the largest group of professionals registered are in the IT industry – making up 22.8% of the database.  They are followed by professionals in Accounting and Administration, making up 13.2% and 9.7% of the database respectively.  The other professions that have a strong representation include Marketing/PR, Management Consulting, General Management and HR/Training.

Click here to read this announcement on Scoop…

Over the past month there’s been heated discussion around the proposed 90 day probationary period law changes.  The fundamental argument between workers rights and the power of the employer has been provoked in force.

One area that’s been overlooked is how this proposed law change could affect the professional contracting and temporary staffing market in New Zealand.

Extending the 90 day probationary period from SME’s (companies with 20 staff or less) to all businesses, is designed to ‘de-risk’ the employment process and encourage employers to ‘create’ more job opportunities.

John Key believes that the 90-day trial scheme for SME’s launched in April last year has been a success. According to Key, “The results…have been stunning. It’s ensured that a lot more New Zealander’s had the opportunity to engage in work.  Employers have been willing to take the risk.”

However, according to a senior Union representative – Andrew Little, to date not one single employer has been able to show that they “created” a new job because of the probationary law.

I’d like to point out that using contract and fixed term staff is an existing option open to all employers, as a means to create jobs, without the danger of facing personal grievance cases. Job creation – whether it’s permanent or temporary work is great news for New Zealander’s. But it seems in this debate we’ve over-looked the fact that creating contract and fixed term jobs is a savvy way for employers to engage with new staff – without risk.

From a job-seeker’s perspective, the creation of more contract and fixed term work is a valuable proposition. If more employers used this option, there would be sustainable job opportunities for more contract and temporary workers.  This would be particularly positive for the groups who’ve been most severely affected by increasing unemployment rates. These groups include Youth unemployment (15-19 year olds) which is currently tracking at 25.2%, Pacifica unemployment – 14.4% and Maori unemployment – 14.2%.

Sure, some people seek the security of permanent work, but with the possible introduction of this law, the burning question is how much will this ‘security’ be diminished?  A Survey by the EMA of its members showed that 72% of respondents had used the scheme.  From the 400 employers surveyed, 48 had fired someone within the 90 days.

It’s definitely still early days.

In a recent survey run by Crackerjacks with HR Managers across the nation – cost was the number one barrier to hiring contractors. But this myth that contractors are too expensive is no longer stacking up. Contractors, in certain industries have actually lowered their rate expectations because of the recent flat trading conditions.  Crackerjacks run a six monthly Rate Guide to show the current direct rate expectations of contractors across a number of professions. To have a look at these download the report here.  We have the next report coming up in September – to receive a copy of this we invite you to join our mailing list (drop us a note on business@crackerjacks.co.nz if you are interested).

Contractors can often churn work out faster than traditional employees when given specific project time-frames.  An experienced contractor knows how to hit the ground running and the right questions ask to get up to speed quickly. Time is money.

I encourage employers and job seekers alike to look at this new dimension of the 90 day probationary period debate, and consider the opportunities that are open to us now.

People contract in the workforce for a number of reasons. Some are ‘Professional Career Contractors’ whilst others are ‘in between jobs’, whilst some others are looking at contract work as being a career development move. Over the last 18 months the increase in contractors looking for work in the market has increased significantly as the numbers have swelled due to the number of people being made redundant and therefore considering contract work as a ‘stop gap’ until another permanent role comes along.

For those that see contracting as their career, do many actually take a view that each contract is a step onwards in their career? I’m sure for many it has been a consideration in the past, but recent times has resulted in many contractors ‘picking up work’ when they can, doing whatever. This is totally fine in the circumstance, after-all we’ve all got to provide for our families (even if the family is just the dog, cat and goldfish). So when times are tough you’ve got to do what you have to, to make things work and to survive.

However, with the market starting to pick up (albeit slowly) now is the time for that career focus to return to your thoughts. Don’t get me wrong, it is still tough out there, but now is the time to start looking at your options with a thought of “what’s this going to do for my career in the long run?” What are the new skills, new areas or new industries you can get exposure to? Sometimes a lower rate contract in a role that can enhance your skills is better than a better paying role that involves doing the same as you did in your last 3 roles. Contractor’s need to have one eye on the future again, as opposed to both eyes firmly looking at the present.

If you would like some external support then contact Andy at www.itsmylife.co.nz.  Andy McCormack is a qualified Counsellor and Life/Career Coach.  He is also a partner and proud supporter of Crackerjacks.

The Department of Labour has recently launched a new web resource called Infozone: Business Essentials. This is a resource that provides simple straight forward employment relations and health & safety information for business owners and self employed people.  It tells you what you need to know, what steps to put in place and then provides downloadable templates, documents and spreadsheets to apply to your business.

Click here to view the website: Infozone: Business Essentials

Until now, you’ve had to wait for your profile to be requested, or manually search for jobs to source work.  But this pro-active feature means you can now save job searches, and then be automatically notified when similar jobs are posted.

To set up a Job Alert:

Step 1:

Join or Log in to your contractor account and ensure your profile is complete – if it isn’t, it’s not possible to search for jobs and set up Job Alerts.  The reason why Crackerjacks works this way, is to ensure there’s a high level of quality amongst the candidate pool. We’re all about talent – this is a key reason why businesses hire Crackerjack contractors. It’s important for profiles and performance checks to be completed so that stand-out performers are highlighted and connected up with jobs.

Step 2:

Conduct an Advanced search, by selcting the Search tab at the top of the page (see screen shot below). Just a tip – keep your search quite broad to ensure you don’t miss out on any relevant future jobs.

Step 3:

When the results appear select “Add to Saved Searches” (the blue button in the screen shot below).

Then you are done!

You will automatically be emailed when similar jobs are posted on Crackerjacks.  To edit saved searches simply select the Saved Searches tab under in the Search category. You can have up to 10 saved searches functioning at once.

We’d also like to take this opportunity to send a reminder out – please update your contact details and career history if these have changed recently.  Simply Log in and select Your Profile to edit these.

Happy contracting!

The Crackerjacks team

As a contractor in New Zealand, it’s important to understand how our Health & Safety legislation effects you. In this article provided by the Department of Labour, Health & Safety guidelines are outlined for businesses or people who engage contractors…

Businesses that contract people or other businesses to do work for them have duties as a principal under the Health and Safety in Employment Act 1992 (the Act). Putting work out to contract doesn’t remove their health and safety obligations.

The aim of the Act is the prevention of harm to people at work or as a result of work activities. To do this, the Act places a range of duties and responsibilities on people in the workplace to manage hazards and ensure work is done safely.

The Act creates a duty requiring principals to a contract to take “all practicable steps” to ensure contractors, subcontractors and their employees are not harmed while undertaking work under the contract.

A principal to a contract, is liable for the health and safety of contractors under the Health and Safety in Employment Act 1992. If they fail in their duty, the Act provides for substantial penalties.

Who is a principal?
A “principal” is any person, or corporate entity, who engages another to do any work for gain or reward, other than as an employee. The exception is engaging someone to do work on your own home (residential work).

If you engage a self-employed person, the duties of a principal under the Act apply — as long as the person meets the accepted tests for that person being an independent contractor and not an employee.

A contractor is considered a “principal” with respect to subcontractors.

What is a principal responsible for?
A principal has a duty to a contractor, a subcontractor and their employees. The duty is to take “all practicable steps” to ensure none of these people are harmed while doing work they were engaged to do. As the legal requirement is that all practicable steps be taken, a failure to take even one practicable step is a breach of the Act.

“All practicable steps”
Taking “all practicable steps” means taking all steps that are reasonably practicable to prevent harm.  It involves consideration of:

• the nature and severity of any injury or harm that may occur
• the current state of knowledge about the likelihood of such injury or harm occurring;
• the current state of knowledge about harm of that nature;
• how much is known about the risk of potential harm and the ways of eliminating,  isolating or minimizing that risk, and;
• the availability and cost of safeguards.

What is reasonable depends on factors such as the:

• scale and nature of the contract;
• type of work the contractor was engaged to do;
• current state of knowledge and “best practice” in the industry;
• nature of hazards in the place of work, and;
• contractor’s and principal’s respective expertise in the work being undertaken.

For example, the steps expected of a principal to a photocopier service contract would be different to those expected of the principal to a contract for a major building
alteration. The “practicable steps” expected of the principal to a major building contract would be extensive.

A principal needs to follow a process to ensure that the contracted work will be performed in a safe and healthy way. This will often include:

• planning and preparing for the work;
• ensuring the contractor is up to the job;
• providing information or resources to contractors;
• monitoring the performance of the contract.

Sometimes duties might be shared by the principal and a contractor. So, if you are a builder or developer who engages an electrician to do electrical wiring on a building project, you will usually have limited duties in relation to the safety of the wiring itself. However, the principal’s duty is much clearer when it comes to providing scaffolding for the electrician to gain access to the work.

The principal cannot contract out of their obligations by passing the duties on to contractors or subcontractors. Courts will not accept contractual clauses that attempt to do so.

The Department of Labour has produced new guidance for principals to contracts to meet their obligations under health and safety legislation. To find out more visit www.dol.govt.nz

Inland Revenue has also provided some guidance on how they intend to apply this case in the Revenue Alert “Diverting personal services income by structuring revenue earning activities through an associated entity such as a trading trust or a company: the circumstances when Inland Revnue will consider this arrangement is tax avoidance”.

The Penny and Hooper case involved surgeons Ian Penny and Gary Hooper who each set up companies to buy their individual practice, they employed themselves in the 2002, 2003 and 2004 tax years at salaries the Inland Revenue Department considered were artificially low.  The IRD took the view that structuring their affairs so their practices were operated through companies and they were paid an artificially low salary amounted to tax avoidance.

The IRD said they took advantage of the lower company tax rate of 33c in the dollar when they should have been taxed at the higher marginal tax rate of 39c on their personal revenue.  Court of Appeal said it was tax avoidance in favour of Inland Revenue.
We would like to summarise the key points we have taken from this case and Inland Revenue’s Alert:

Pay yourself market rate

If you contract as a sole trader through a company or trust and rely on your personal skills to generate an income, you should pay yourself a market rate salary from the revenue earned.

In the Penny & Hooper case both surgeons were paying themselves salaries that were below market rate – respectively $100,000 and $120,000.  During the case they admitted these salaries were lower than what they would have accepted from a third party.  Their profits were circa $700,000, and the majority of the revenue was being taxed at a lower company rate (33%) as opposed to the top income tax level (39%) which they should have been adhering to.

Be aware of IRD’s “Look-through” approach

One of the key lessons illustrated from this case is that Inland Revenue will now review each case where a taxpayer’s arrangement substantively diverts some or all of the income earned from personal services to an associated entity which takes advantage of lower marginal income tax rates by that entity and/or by family members as beneficiaries or shareholders of the entity.  Inland Revenue however has said that they ‘will generally focus on the most serious and artificial cases – recognising that many ordinary small businesses reasonably make use of different entities to carry on their business.”

Inland Revenue do accept that there are genuine commercial reasons why profits may be kept in a company and “would not expect that remuneration would be paid where there is little or no profit genuinely being generated in economic reality, such as in a start-up phase or in difficult trading conditions”.  So depending on the stage a limited company is at (start-up, retrenchment or in a growth phase), their view on tax avoidance will vary.

Inland Revenue has provided a list of guiding factors where a person earns income from personal contribution and supply services to customers which they will examine:

• An entity (such as a company or trading trust) operates the business. This entity engages or employs the person or contracts their services for no remuneration or artificially low remuneration which does not reflect what a reasonable person would expect to earn from that activity.
• Where the business is transferred – did the business operate substantially as it did before it was transferred to the entity?
• Whether the arrangement is commercial in comparison with relevant standard business practices by examining the agreements the business operates under, the manner actually implemented and whether the arrangement is commercial.
• The degree the person or family ultimately controls the entity and cash flows from the business.
• Whether there is a redistribution of the income from the entity to the person or family by employing family members, loans, service fees etc.
• The significance of non tax reasons for structuring the business compared to personal attributes of the taxpayer.
• The extent of significant tax benefits obtained because of the arrangement than would have been payable by the taxpayer.

So if you operate as a contractor through a company or trust then the level of remuneration you pay yourself should reflect your contribution to the profits of the entity but you can take account of the business environment, plans, risks, genuine economic reasons for keeping profits in the entity and how much income is actually generated.

The future …

The Penny and Hooper case is being appealed to the Supreme Court, our highest NZ court so we will have to wait and see if they agree or overturn the Court of Appeal decision.

In the meantime, if you would like professional advice on this matter – please contact your tax advisor or feel free to email us on information@crackerjacks.co.nz and we can assist.

However, around the time when the top personal tax rate was raised to 39%, Mr Penny and Mr Hooper incorporated their businesses.  In each case the surgeon was employed by their company and paid a salary of $100,000 and $120,000 respectively, although both companies were deriving profits circa $700,000.

Remarkably, both surgeons admitted during the case hearing that the salaries paid were less than the market rate they would have accepted from a third party.  The result was that the top income tax rate of 39% was applied to a minimal amount and most of their profits were taxed at a lower company or trust tax rate of 33% and then distributed to the trusts.

Ultimately both surgeons and their families were receiving substantial additional income without attracting additional income tax liability.

What distinguishes Penny and Hooper’s decision from other tax avoidance cases is that the judges adopted a “look through” approach to the taxpayers’ arrangements to determine whether the combined effect amounted to tax avoidance, where in the past each transaction was tested separately.

Amongst other concerns within the business community, a key concern is whether  Inland Revenue’s focus is on professional people only, (such as doctors, dentists, accountants) who structure their professional services through companies and trusts, or whether the Penny and Hooper decision might be applied to any tradesman operating through a company.

In an attempt to clarify the Commissioner’s position the Inland Revenue has released a Revenue Alert.  The Revenue Alert states that “where a service business relies mainly on an individual’s personal skills to generate income, than contribution to the business should be properly reflected in the income returned by that individual”.

In his comments on the Revenue Alert Craig Macalister, NZICA’s tax director, noted that in the context of the Revenue Alert “it is hard to distinguish, for example, between a medical practitioner, an electrician, a company director, or anyone that relies mainly on personal skills to generate income”.

However, the Inland Revenue accepts that there are genuine commercial reasons why profits may be kept in a company and “would not expect that remuneration would be paid where there is little or no profit genuinely being generated in economic reality, such as in a start-up phase or in difficult trading conditions”.

The Inland Revenue accepts “that income can be properly retained for major expenditures or provisioning” and their “concerns are not with non-payment of remuneration or with retention of earnings inside an operating business entity, where these are for genuine commercial or economic reasons. In such circumstances, it is unlikely that there would be other distributions of profit from the business to the taxpayer and his or her family”.

From 1 April 2011 the difference between the top personal tax rate and the company tax rate will fall to 5%. However, the 5% tax benefit will be merely a timing difference.  When the income is paid as a dividend the difference will need to be paid by the shareholder.

Source: RSM Prince – Chartered Accountants. The information supplied in this article has been researched with care.  However, the author and the company accept no responsibility to anyone for any error which may occur in the information provided. Readers are advised to consult their normal source of expert advice before acting on anything.

Contact RSM Prince on Ph: 09-3795324, e-mail: office@rsmprince.co.nz

So we’ve got a handy formula for you to work from when undertaking  this task.  This is an extract from the Crackerjacks How to Guide for Contracting. Follow this link to find out how:

Crackerjacks Permanent to Contract Rates

If you would like to know more information about this report, please contact us on info@crackerjacks.co.nz

For a PDF version of this article select the following link: Employment Today JUNE 2010 (Executive Leasing article)

With the recent rising popularity of executive leasing, it is important to understand the factors that are fuelling this growth, the relevant market trends and how businesses can use this new insight to avoid common mistakes.

The birth of Executive Leasing in New Zealand occurred in the late 1980’s after the global equity crash; since then this dynamic market has evolved significantly.  At the time, this downturn hit businesses hard, forcing mass redundancies at all levels.  The emergence of executive leasing was driven by both a large pool of talent, and business’s focus on necessary cost-control exercises for their own survival.  As we emerge from a similar financial crisis, the popularity and relevancy of executive leasing is growing again, but with a new flavour, synonymous with the 21st century.

From my experience working in the executive leasing market with Crackerjacks – contracting specialists, I have seen some interesting trends emerge. The key observation is that there are clear signs a second rise of executive leasing is starting to take place in New Zealand; this will see all types of temporary and contingent staff numbers spike and create a new floor level of workers contracting, as opposed to other forms of employment.  So employers – it’s time to get prepared.

Technology revolutionising contract recruitment
The arrival of new technology has streamlined the way businesses recruit. Online job boards, candidate portals, e-recruitment platforms, not to mention social media, have all changed the way contract talent is hired.  With the aid of these new on-line recruitment tools, more employers are finding that cost-effective results can be achieved by recruiting in-house.

The prolific reductions in recruitment budgets that stemmed from the financial downturn has encouraged companies to favour lean recruitment models, with in-house HR teams utilising recruitment technology.  It is fair to say that these lean-models are here to stay.

Using job-boards has been a popular and cheap method in recent times.  According to Seek.co.nz, in March 2010 the largest volume of job adverts was recorded in the past 15 months, with 1,995 original postings recorded across the nation. Interestingly so, I’ve noticed there has been growth in companies advertising directly, as opposed to agencies securing exclusivity on roles.

While the use of job boards can work well for permanent roles, this is not always the case with contracts.  The typical CV of a career contractor can appear confusing with an array of three to twelve month contracts, not painting their experience in the most positive light.  To the average employer it’s hard to gauge their actual performance in each project; which makes screening a multitude of CV’s, with no performance commentary, a tricky, if not impossible task.

With the growth of Web 2.0 options available to employers, contract recruitment can be improved. The systems that are available to HR Managers today provide transparency and direct control over the recruitment process, which helps to achieve excellent outcomes.

Tech savvy HR Director – Sandra de Kock, discusses the growing popularity of new web technology that allows for direct interfacing with candidates.  As the HR Director of Propellerhead, a software development company and an Accredited HR Professional and Executive Board member of the Human Resources Institute of New Zealand, she has seen the executive leasing market develop significantly since its inception.   “In the past, if you needed a contractor you would call your recruiter straight away, but this is no longer the case.  With a range of Web 2.0 tools available to HR, the recruitment function can be effectively managed in-house.  Contractor portals, forums, social media and job boards all allow for more transparency while sourcing, which benefits the contractor and the employer. Some of these tools provide performance feedback on contractors, allowing further transparency and efficiency during the recruitment process.”

With these options available, businesses can also create talent pools, which is an essential element in any HR strategic plan.  The importance of maintaining talent banks of contract workers was highlighted in a recent report conducted by the Human Capital Institute (2009), which is a global talent management association.  According to this report, organisations will need to have access to contract talent at the right price, in the right numbers and in alignment with corporate objectives to succeed in tomorrow’s market. Having access to active contractor talent pools is the only way to achieve this.

The future of contracting in New Zealand
The executive leasing market is booming overseas; it is a matter of time before this trend hits our shores. In a report from CXC Global, a contractor payroll specialist, the Australian Bureau of Statistics reported around 25% of their workforce could be labelled as contingent (contract or temporary staff).  This is a significant chunk of the workforce. Using professional contractors makes commercial sense, with these professionals at hand projects can be delivered quickly while lowering staff overhead costs.

But employers need to look beyond the sourcing of these professionals and question how they will actually be managed.  Over 70% of New Zealand businesses do not have policies in place to source, engage and manage contingent workforces effectively. This means employers could be at risk.  Without set procedures, hiring managers will have no choice but to improvise with inefficient processes to manage their contract talent needs, resulting in multiple vendor relationships, non-uniform pricing and uncertain compliance status. As explained by Kirsty Erasmus, the NZ Manager of CXC Global, the result will ultimately equate to losses in time and money.

This sentiment for growth is backed by senior HR Director Sandra de Kock.  She points out that the casualisation of the workforce is beginning and this will see contractor numbers boom.  With job seekers targeting flexible working options and the recovering economy limiting the number of full-time permanent jobs available, contracting stands to benefit. “This growth will be across the board and we will see more contractors entering non-traditional roles, such as administration/support positions” explains Sandra.

I’ve seen a trend emerge where employers, particularly in the public sector, are hiring fixed term staff instead of traditional contractors.  By engaging fixed-term employees, managers can cost-effectively supplement core teams.  These individuals are usually added to the company’s pay-roll and remunerated on par with permanent employees, with lower hourly rates than what contractors’ receive.

But, it is a well entrenched myth that all New Zealanders prefer permanent work and our legislation stems from this.  These regulations will be scrutinized as the number of contracting professionals increase.  With more Gen X and Baby Boomers seeking flexible working options to escape the traditional ‘9-5’ grind, while still contributing their expertise in business, our contingent workforce will grow.

What are contractors really worth?
With so many different types and levels of contracting professionals, understanding market rates for individual roles can be difficult.  Getting valid, accurate and current data can be a nightmare for HR and Line Managers. On a six monthly basis Crackerjacks analyses the rate expectations of contractors, to help employers understand the naked market rates. Naked, you ask? There are no margins involved – these rates are straight from the horse’s mouth, so to speak.  Key findings can be found in the sidebar article.

To secure work, professionals have been willing to lower their rates.  On the surface this appears to be a positive for employers, but the recession has actually had an adverse effect on the contracting market.  A number of talented career contractors have moved into permanent roles to secure their income stream.  With these valuable professionals exiting the market, the gap has been filled by new entrants who have been affected by redundancies.  This observation was made by Sandra from an HR Manager’s perspective; I certainly agree with this because the number of new contractors requiring advice has increased over the past six months.  An effective contractor requires a different skill-set to your typical employee, even though role functionally remains the same.  The best contractors will manage client expectations, work strictly within the brief and perfect their time management skills. These competencies are often overlooked by new-comers to the contracting realm and can cause headaches for employers.

I’ve found that employers are increasingly mindful about the performance of their professional contractors and the best ways to manage these people.  With an ever increasing competitive market, rigid budgets and high expectations for project outcomes, it’s important that jobs are done right the first time. Understanding what determines performance is vital for any manager.

Past performance is a strong indicator of future performance; upfront checks on contractors are essential so that good candidates can be highlighted.  With the urgent nature of contracting, having performance validated CV’s at hand is crucial – otherwise it’s a gamble.

Performance is also guided by the way professional contractors are managed.  The following pointers should be acknowledged when hiring and managing contractors:

• Discuss what is to be delivered and when this should be completed.
• Cover off key milestones you want achieved, reported on and how often.
• Make it clear who owns the work that the contractor produces. Clarify any provision of materials, equipment, data or premises.
• Include a confidentiality clause in the contract – what sensitive information can not be disclosed?
• Finally, clearly explain and document the expected terms of payment and exclusivity issues – can the contractor work for anyone else during this contract?

The cause for the rising popularity of contracting is more deeply set than a knee-jerk reaction to getting ‘bums on seats’.  With a case of history repeating itself, our most recent recession has brought organisational structures under scrutiny again and highlighted the importance of lean and efficient operations. Contractors and temporary staff are essential elements in the workforce and are critical to achieving maximum productivity.  I encourage you to look at your organisation; do you believe the measures are in place to manage a growing contingent workforce?

For a PDF version of this article select the link below:

Employment Today JUNE 2010 (Executive Leasing article)