When you’re establishing a business and hiring a team in New Zealand, there are a few options when it comes to recruiting, onboarding and paying your workers. 

It can be confusing to know which services are right for your business. Some employers mistakenly think they need to use an umbrella company. 

Here is some info about what an umbrella company is and why it’s not a good long term solution when you are building a team of employees in New Zealand. 

 

What is an umbrella company?

An umbrella company is used to support contract workers only. 

It is a third party company that acts as a go-between for a business and the contractors it employs. 

 

Here’s an example: 

‘Sam’ is a contractor who is offered a short term contract with ‘A Large Company’. 

‘UmbrellaCo’ is the umbrella company that acts on behalf of A Large Company and Sam. 

Once Sam has signed a contract and started working, UmbrellaCo invoices A Large Company to collect Sam’s pay. It then pays Sam after taking out the necessary tax and superannuation payments. A Large Company pays a fee to UmbrellaCo for its services. 

 

Many contractors and freelancers use umbrella companies because it helps them to receive a regular income without having to worry about putting aside the right amount of money for tax and superannuation. They’ll have a record of the hours they work and receive a tax certificate at the end of the financial year so they are similar to what’s known as a PAYG employee in New Zealand. 

If you only need contractors in New Zealand for short term roles, you may decide to use an umbrella company. However, its services are very limited. You won’t have the option to hire full-time or part-time employees through an umbrella company. 

What’s more, hiring contractors can be complicated in New Zealand. You don’t want to inadvertently break the rules because you aren’t clear on the difference between a contractor and a permanent employee. 

 

What is a PEO in New Zealand?

A PEO is your company’s representative when it comes to hiring and paying your team. In addition to ensuring workers are paid and their tax is withheld, your PEO can help with recruitment, insurance and human resources. 

When you hire people in New Zealand with the help of a local PEO, you will have someone close by who can interact with people by performing HR as well as payroll duties such as paying tax and other requirements. 

A PEO in New Zealand doesn’t set tasks or KPIs for your workers. It isn’t involved with their daily activities but it acts as a stand-in ‘entity’, saving your company from the cost of establishing an entity itself. 

 

Ready to hire in New Zealand? PEOs make more sense

An umbrella company employs freelancers or contractors who work on temporary assignments or contracts. For the duration of their time with the business, the worker becomes like an employee of the umbrella company. Communication is often automated and it can sometimes be difficult for workers to get hold of people. 

As mentioned, an umbrella company has a limited offering and only serves to pay workers. It is also likely to be connected to a specific recruitment agency, meaning you have less flexibility when it comes to deciding who to use for hiring purposes. 

A PEO and an umbrella company will both deduct PAYE tax from pay and issue payslips. Both will also help your company to pay your workers correctly and not mistakenly miscategorise a contractor as a permanent employee and vice versa. 

The added advantage of a country-specific PEO is that it provides a suitable ‘package’ solution for overseas companies that want to build a team in New Zealand. It can assume the responsibility of an employer, rather than simply handling wages, which gives your team a more well-rounded experience and helps to improve engagement. 

Your PEO also acts as your entity in New Zealand, saving you money and allowing you to rapidly build a talented team. 

 

Want to know more about hiring in New Zealand? Talk to ANZPEO today.