I’m afraid this isn’t going to be the most entertaining or titillating of Whiteboard blog posts but it’s about something of great importance to our New Zealand recruitment industry, so I feel if pretty much behooves me to talk about it today.
In particular if you are a Contractor specialist recruiter, or owner of a recruitment company that provides Contractors, then you need to be aware of this.
The NZ Government recently passed a bill changing the tax rules around contractors who receive schedular payments, the upshot being that labour hire companies providing contractors who are working under a labour hire arrangement must, from 1st April 2017, start deducting witholding tax from what they pay their contractors and send that money to the IRD.
Upon learning this earlier this week I was initially relieved. I wouldn’t classify myself as owning a “labour hire” company at all. Whilst these firms make up a significant and crucial part of the broader NZ recruitment community, I remember my days working next to a Labour Hire desk in Australia and the hand-to-mouth existence, the unpredictability, the drugs-test-failing, and the rocking up to the office in dirty boots clutching illegible timesheets nature of the “contractors” aren’t something my firm really handles. Well not to the best of my knowledge anyway!
Unfortunately the IRD doesn’t see it that way:
A labour hire business may also be known as:
an on-hire business
an employment agency
contract management, or
There are many things that amaze me about all of this. Firstly, the fact the IRD think that recruitment companies are likely to be any good at complying with this new legislation and meeting their obligations shows how little they really know about the psyche and set up of recruiting firms out there these days. The larger ones might look at this and give a shrug, let their accounts department know, who will put a new tax code into their payroll system for their GST-registered Contractors. But there’s many, many smaller recruitment firms, some only running a handful of contractors, who will in no way be structurally or technically prepared to collect these taxes.
And the penalties for non-compliance are extremely onerous…
The other thing that surprises me is how little publicity there has been around this. I’m not a member of the RCSA so wouldn’t expect to hear news on this from them, but I have spoken to other recruitment companies who are members and who had no knowledge of any of this. I’m not on my RCSA-bashing soapbox today because I’m sure they did communicate this, but I also know how trigger happy recruiters can be on the [Delete] button with many emails coming through like this. I would like to think the RCSA lobbied quite hard on behalf of their members to oppose this new legislation, because more than anything else it seems really bloody unfair. Contractors dealing with in-house recruitment teams and working directly for employers don’t have to have this tax deducted, only if they are working through an agency.
Contractors often grumble about the margin that agencies make on their hourly rate. These grumbles are only going to intensify now they have to have tax deducted by the agencies too, and going to make it increasingly appealing to contract directly to the end client.
But the most incredible thing about all of this is how little time recruitment companies have got to prepare and get set up to meet these new obligations. It’s like the IRD has completely ambushed the industry and it wouldn’t surprise me to see a number of the smaller operators caught in the crossfire in the months ahead.
Thanks to Kirsty Hunt from The Detail who first gave me the heads up on all of this, getting in a full week ahead of my own accountants. Kirsty’s company supports recruitment agencies in taking care of all the payroll shennanigans for their Contractors, and at very reasonable rates too. Kirsty has shared with me a white paper she has written on all of this which will answer many of the questions those of you unaware of all this will undoubtedly have, and she has kindly agreed to let me share it on the Whiteboard today too:
Click here to access the report or copy and paste this into your browser: http://thedetail.co.nz/the-detail-on-changes-to-contractor-taxation-effective-april-2017/
There – told you it wouldn’t be much fun. Now go and enjoy your St Patrick’s Day Fridays!