Challenges for outsourcing

Outsourcing is about to become major headache under the Government’s new Employment Relations Bill. Many employers are just beginning to understand the Bill’s serious implications for contracting out, or outsourcing. Outsourcing is very much fundamental part of modern business practice. About 25 percent of jobs are in non-traditional employment areas.
Business sees the conditions in the Bill handicapping them partly by limiting their ability to respond quickly to changing market conditions, and partly by imposing on them whole heap of new compliance requirements.
The Bill proposes to introduce several new types of obstacle. first type is by redefining who is to be classified as an employee.
Anyone working from home, regardless of the nature of their present contract, will apparently be deemed an employee. The new definition includes even those required to buy their own stock for selling on behalf of supplier.
The clause has huge implications for any business engaging people on contracted basis to undertake work from home, or to sell goods on their behalf. In considering whether anyone is an employee rather than an independent contractor, the Employment Relations Authority, which is to be established, will be able to ignore what written contract says, and decide that the person is in fact an employee.
This will create uncertainty and allow decisions to alter retrospectively the legal basis upon which parties were previously happy to deal with each other. The second type of obstacle is just as serious. It involves the many obligations both existing and new, that employers fulfil towards employees and which they don’t have to bother with in relation to independent contractors.
These include tax obligations, and employer liability for minimum entitlements. On top of these whole new raft of compliance requirements will be heaped.
Under the new law all employees must be given written instructions on how to solve work disputes. They must also be given notice in writing stating the terms of their employment, including 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 while doubt remains whether someone is an employee or contractor, employers who fail to comply with this requirement on behalf of their employees will be exposed to penalties of up to $5000 for individuals and $10,000 for companies. Many businesses will be faced with dilemma. If 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 haven’t 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 could involve complications dealing with PAYE and ACC, as well as employers having 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 revisiting by the IRD of their self-employed tax status. Another hurdle for any business contemplating outsourcing is the Bill’s requirement for ?good faith’ to apply to all proposals for contracting work out, or to the sale of all, or part of business. person could potentially face an injunction to prevent them from contracting out, or selling business, because of ill-defined good faith requirements that were not complied with. In essence the Bill greatly increases the level of uncertainty in the business environment. The risks associated with this uncertainty are therefore increased even though business needs as much certainty as it can get for planning and investment.
Peter Tritt, employment relations manager, Employers and Manufacturers Association (Northern).