Employees vs. Contractors: What’s Best for Your Business?
As your business grows, one of the key decisions you’ll need to make is how to structure your workforce. Should you hire workers as employees or engage them as independent contractors?
Let’s explore the pros and cons of each approach to help you make an informed decision.
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Hiring Employees
✔ Pros:
· More control – You set hours, processes, and supervise the work.
· Stronger team culture – Employees are usually more involved in your business long term.
· Consistent availability – You can rely on them being there during agreed working hours.
✘ Cons:
· Higher costs – You need to pay PAYE, KiwiSaver, annual leave, sick leave, and ACC levies.
· More admin – You must register as an employer and file regular reports with IRD.
· Legal obligations – You're bound by employment laws like the Employment Relations Act and the Holidays Act.
· Training and membership costs – As the employer, you will need to cover the costs of training your employees along with covering any membership fees.
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Engaging Contractors
✔ Pros:
· Lower costs – Contractors handle their own tax, ACC, and time off.
· Flexibility – Ideal for short-term or project-based work.
· Specialist skills – Many contractors bring specific expertise.
· Growing business – Great for a growing your business where sales are not certain or for any one-off projects.
✘ Cons:
· Less control – You can’t tell them how to do the job, only what the outcome should be.
· Compliance risks – If the contractor works like an employee, you could be penalised for misclassification.
· Less loyalty – Contractors may work for others and not be as committed to your business.
· Reliability - Contractors can turn down project offers or days you have asked them to work.
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⚠️ Be Careful
Even if someone:
· Only works for you
· Has Withholding Tax (WT) deducted from their pay
· Invoices you weekly
...they could still be an employee under NZ law if the relationship looks and functions like employment.
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Choosing between hiring an employee or a contractor depends on your business needs — but also on how the relationship operates.
Not sure which path is right for your team? Let’s chat — we’re here to help you get it right and stay compliant.
