The Government's proposal to draw so called "dependent contractors" within the framework of its new employment law is about to pose a major headache for businesses using independent contractors, according to the Employers & Manufacturers Association.

"Many businesses we are hearing from are calling this part of the new law 'disastrous'," said Alasdair Thompson, chief executive of EMA (Northern).

"No one will be able to know for sure whether someone they have engaged as an independent contractor is actually an employee.

"Even if the contract they have signed clearly states this is the case, the view of the new Employment Relations Authority, to be established, may be different.

"This aspect of the Bill will create a huge degree of uncertainty and has the potential to undermine businesses reliant on contractors; it could easily cause unemployment," Mr Thompson said.

EMA's Employment Relations Manager Peter Tritt said the implications are very serious for anyone in business because there are many obligations, both existing and new, for employers to fulfil towards employees that don't apply to independent contractors.

"On top of existing tax obligations, and employer liability for minimum entitlements, there will be heaped a whole new raft of compliance requirements.

"Under the new law all employees will have to be given a written notice stating their terms of employment including a description of the work, the places where work is to be performed, the hours, days and times of work, rest and meal breaks, and the wages and salary payable.

"For someone engaged as an independent contractor these notices will often be irrelevant. But employers who fail to comply with this requirement on behalf of their employees will become exposed to penalties of up to $5000 for individuals and $10,000 for companies.

"Many businesses will be faced with a dilemma. If a person they are dealing with on the basis that he/she is an independent contractor is subsequently deemed an employee, they will find that they have not complied with the law.

"They will then have to untangle the mess created by moving someone from one contractual basis as an independent contractor to another as an employee. This will mean liability for PAYE and ACC. Employers will also have to reconcile their statutory liability to pay minimum wages and entitlements with the contractual payments made in terms of an independent contract.

"From an employee's perspective, an inevitable outcome will be a revisiting by the IRD of their self-employed tax status."

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