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If you are a first time temp or contractor then this article is for you. If you are an experienced contractor – don’t go away ! I would love to hear your thoughts and comments.

The temporary/contract market is very different to permanent employment and can take sometime to get used to. People work this way for a number of reasons, flexibility, between permanent jobs, career move, need work before travelling or moving, try and gain more skills… whatever the reason there are a few things you need to know.

Here’s my quick-fire list of 10 things you should know as a temp:

1)    Be flexible
The more restrictive you are on role content, hourly rate and location; less opportunities are going to come your way. A 4week assignment that’s 10 mins further than you wanted to travel may be better than not working for 4 weeks.

2)    It’s not all about the $$$
As a temp/contractor you need to be planning ahead, if a role can increase your skills or experience this might help you get a better contract further down the track or make it easier to secure your next contract. Is it worth turning it down because it’s paying a few dollars less per hour.

3)    Don’t be too proud
The number of contractors I have worked with over the years who have been too proud to drop their rate or perceived ‘status’ when a particular role has been talked about only to be back in touch constantly over the next 3 months as they still haven’t got a job. I don’t mean that you should accept anything or that you shouldn’t back yourself. I just encourage you to be open to the opportunities.

4)    Prepare to be out of work
Fact of life in the contracting market. You won’t always have work, even some of the best contractors I have ever known have had a month or 2 with no work over the last 2 years (and that’s not through choice). Budget wisely and if possible build up a supply of $$$.

5)    Use your Networks
As a temp/contractor it is down to you to source your own work. Sure agencies may help, but they have lots of people just like you wanting the same type of assistance. So utilise your own networks and keep in touch with everyone, not just when you need your next contract.  Not got a network – then GET ONE.

6)    Check your pay cycle
Before you start a contract make sure you know who is paying you and when you will be paid, as this will vary from assignment to assignment. If the contract is through an agency, make sure you know how their timesheet system works and who will be signing it from the client you are working for. You are likely to be paid on an hourly basis so make sure this correctly logged. DO NOT accept late payment from an agency, they owe you as per your agreement with them, so keep on to them if they pay late.

7)    Negotiate with your agency
Agencies make their money by adding a margin on top of the rate that you are being paid. This is perfectly acceptable, afterall (at no cost to you) they have found you the role and are paying you so you aren’t chasing the client you are working for (they also usually pay you before they get paid by the client). I’m not recommending that you insist on being paid what the agency is paying you, but that you should always try to negotiate the best deal for you, an extra $1 per hr can make a big difference long –term.

8)    Be the very best you can ALL the time
In the temp/contracting market your name is your brand and therefore is a direct link to your ability to source work. Make sure you have a good reputation for doing a good job. It is a scarily small market and you would be surprised who knows who and what information is discussed/shared.

9)    Get on with everyone
If people talk about you and your work and the first thing they say is positive, then this is a great start to the conversation. You instantly become the focus of a positive discussion. Also as a temp you don’t know who has what influence in a business business. I remember a temp of mine walking through the car park of a clients he was working for, on being questioned on what he was doing he told the questioner to ‘get lost, none of your business’ – only to find out that person was the General Manager. The temp lost that contract.

10)    Enjoy it
Contracting can be a great way of working and is an opportunity to increase your skills and meet lots of interesting people. Sure it’s hard work and not for everyone, but if you find yourself in the position of working on a contract assignment enjoy it as you never know where it might lead.

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

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

Having been in the recruitment industry for over 15 years across Europe and NZ I have had the pleasure of working closely with some great people, both as clients and as contractors and/or candidates. I have recruited for everything from temporary Warehouse staff to Contract GM’s and Contract Country Managers in Europe. One of the things that has always stood out to me as being common across all areas, is how isolated contract and temporary staff can feel at times.

As a contractor, how many times have you sat and watched the rest of your team disappear of to a meeting, whilst you’re left to ‘hold the fort’ (answer the phones more like), miss out on a team lunch or not be invited to the Christmas party at all!

Not only do you miss out on the ‘fun’ stuff, you can miss out on the supportive stuff as well. Who do you turn to when you are being bullied at work, who do you talk to about feeling stressed or not coping (EAP doesn’t always apply to contractors), who is there out there for you?

Some would say that’s what your agency is there for, I would say depends on how good your consultant is. Some consultants will only think of the $$$ and do their best to keep you working for their client regardless, whilst some ignore any issue by ignoring your calls. A few will actually be ‘Consultants’ and actually listen and work with you (but these are few and far between I’m afraid).

And then there are contractors who don’t work through agencies – “Sole-traders” who contract directly to the client.

So what can you do if you are finding it tough at work or feel that you are not getting the professional development advise you need? Firstly, know that you are not alone and that many contractors feel the same way. Network hard with other contractors when you can, so you build a support group of fellow professionals who know how you feel. Talk to whoever has been involved in the process of getting you placed in your role (Crackerjacks are always as supportive in this regard) and explain what’s happening. Talk to your Manager or HR Manager at your assignment company, they will want the assignment to work out as much as you do. Share your worries with friends, family, counsellor etc, bottling it up won’t make it go away.

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.

Self-employed parents are eligible for 14 weeks paid parental leave under the Parental Leave and Employment Protection Act 1987

You are a self-employed person under the Act if you are:

a) Providing goods or services for hire or reward under a contract for services, or

b) Carrying on a business (including a profession, trade, manufacturing operation or an undertaking carried on for profit), including in partnership for another person, or

c) Working for a trust in a business carried on by the trust.

To be eligible you must:

• Meet the definition of self-employed stated above, and
• Be a birth mother/adoptive parent, and
• Have worked an average of at least 10 hours a week over the six or 12 months immediately before the expected date of delivery or adoption of a child.

See what you could be eligible for

The payment is funded by the government, if you meet the criteria you are entitled to:

• Your average weekly income or $429.74 per week (gross) whichever is lower, or
• If you make a loss or earn less than $125.00 per week (gross), you’re entitled to $125.00 per week (gross).

On the 1st of July 2010 the maximum payment for self-employed persons will rise to $441.62 per week (gross). The minimum payment for self employed persons will rise to $127.50 per week (gross).

Calculate your net income for the parental leave payment

Your self-employed status, net income and average weekly earnings details need to be confirmed by a:

• Declaration from a Chartered Accountant, or a
• Declaration completed by you and witnessed by a Justice of the Peace (or other person who may witness a statutory declaration), or
• From 1 July 2010 tax advisors who are a member of an organisation with approved advisor group status (This currently applies to NZICA and TINZ) under the Tax Administration Act 1994.
• Find out more about who can verify your application

Payments for parental leave are processed by Inland Revenue. Once you have decided on your leave arrangements, you should make an application as soon as possible, using the following forms:
IR888 for self employed applicants
IR889 for partners of self-employed applicants

Get more information on parental leave for self employed persons

CXC Global has just announced they can now provide PI/PL to ANY contractor regardless of whom their employer or agency is. They offer various levels starting from just $300 + GST per year and one easy to complete, plain English application form.

Why take PI/PL cover? If a mistake is made it will help to cover you for any damages you then become liable for, subject to the level of cover your business is insured for.  It also helps to fixing any mistake on your part so that there is not much loss, financially or even legally.

Take the example of an Analyst Programmer in an IT firm who is responsible for analysis, design, modification, testing, installation and maintenance of various application programs. If by mistake they commit some error in analysis or say in testing, then they could be held accountable for legal consequences, but indemnity insurance would defend him during such situations and will provide him legal aid as well as will help pay financial cost.

There is also a section covering property damage or bodily injury you may cause while on your client’s site and Statutory Liability cover for legal costs and expenses in defending yourself against a breach of Statute/Act of Parliament.

CXC Contractor InsuranceTM also includes other contractor-specific policies such as Income Protection, Life, Critical Illness and Business Equipment  Insurance. Please call Kirsty Erasmus on (09) 353 1981 or email Kirsty.erasmus@cxcglobal.co.nz for more information.