Contractors fall under the category of Scheduler Tax Deductions.
You make payments to them under a contract and can include certain activities, eg commissions, director fees or labour only contracts in the building industry. GST can be payable.
They are not eligible for KiwiSaver or Leave Entitlements.
Use the Pay Element CON – Contractor Payment when making payments not T1 Ordinary Time as any payments should not be included in ACC Earner Levy.
If you are amending an existing Employee (who previously had PAYE deducted) to a Contractor without tax or Withholding Tax to be deducted, we advise terminating (add Final Pay date) the employee record and setting up a new record for their contractor payments. Contact our helpdesk for assistance.
https://www.ird.govt.nz/topics/income-tax/types-of-income/schedular-payments
Set Up a New Contractor
In People > Add Person > Personal Details complete name, address, start date, bank account, pay rates information, pay frequency and IRD number as per any other employee.
Job Details
Select N/A (Company/Contractor)
Tax Details
Select Tax Code WT
Advanced Tax Details
Special Tax enter the % they require for their Withholding Tax to be deducted.
If the contractor has a Tax Exemption Certificate.
Select Tax Code None
KiwiSaver
KiwiSaver Status Not Eligible
KiwiSaver Employee Rate 0.00 %,
Employer Subsidy 0
Employer Subsidy Tax (ESCT) 0% (No Employer Super).
Save
To remove Leave Entitlements (typically AL20 and SICK-ENT)
People > Timesheet Template
Click on AL20 - Annual Leave (4 weeks pa)
Remove
Click on SICK-ENT
Remove
To add GST to the Timesheet Template
Enter 1 in the Green Qty Box
Select the Element GST from the drop down menu.
+ ADD
Click on the GST Element to select a payslip format.
• Remittance Advice: Use if Contractor supplies the invoice to company
• Buyer Created Tax Invoice: Use if no invoice supplied to company
Timesheet Entry
Enter 1 in the Green Qty Box
Select Element CON – Contractor payment (not T1 Ordinary Hours) to pay them.
https://www.ird.govt.nz/topics/income-tax/types-of-income/schedular-payments/certificates-of-exemption-for-schedular-payments