By Greg Allan, tradesman and creator of Data First Coaching
Why does it matter whether my membrane applicator is a contractor or an employee?
Most waterproofing business owners treat this as a legal tick box to sort once and forget. But whichever way a wet area specialist or balcony crew member is engaged, as a subbie invoicing for the job or as an employee on wages, changes which bucket that cost sits in on the books: cost of sales against the job, or overhead sitting underneath every job regardless of size. Get that wrong and the gross profit on a shower, balcony or basement membrane job can look fine on the quote and wrong on the bank balance once cure times, flood tests and a possible remedial callback have all been absorbed.
A builder or tiler engaging a waterproofer for a wet area or roof deck job does not care how the crew applying the membrane is paid. They want the certificate, the warranty and a clean inspection result. But inside the waterproofing business, whether that applicator is on wages or on an invoice decides whether their hours are counted against that specific job's true cost, or lost in a pile of overhead that nobody checks against a particular balcony or basement. The compliance question and the numbers question are really the same question asked from two different directions.
What actually decides if someone is a contractor or an employee in New Zealand?
There is no single test. According to Employment New Zealand, a contractor is self-employed, earns income by invoicing for their work and does not have an employment agreement or most of the protections under the Employment Relations Act 2000 Employee or contractor?. Inland Revenue takes a similar line: the actual working conditions, written or agreed verbally, decide the answer, not what the waterproofing business and the applicator choose to call the arrangement Self-employed or employee.
Employment New Zealand also points to a gateway test that came into law to help settle status, though that test only applies going forward and cannot be used to recast an arrangement already running on an existing bathroom or balcony contract. Inland Revenue's self-employed guidelines ask whether the applicator provides their own major tools and equipment, pays for their own training and decides how the membrane work is carried out, while the employee guidelines ask whether someone else can tell them what to do and when, pay them a set rate, or decide the standard of the finished wet area. Inland Revenue's Interpretation Guideline IG 16/01 adds a control test, which looks at how much say the waterproofing business has over the way the work is done, and a fundamental test, which asks whether the applicator is genuinely in business on their own account rather than working inside somebody else's IG 16/01. Inland Revenue has also made clear that a waterproofing business cannot simply relabel someone a contractor to change the tax outcome if the underlying arrangement still looks like employment.
Why does restricted building work make this harder for a waterproofing business?
Waterproofing work on wet areas, balconies and roof decks is restricted building work, which means it must be designed and carried out using a Licensed Building Practitioner, according to the Ministry of Business, Innovation and Employment. That licensing rule sits on top of, not instead of, the contractor-or-employee question, so a fully licensed applicator can be engaged either way, and the licence says nothing about which bucket their cost belongs in.
MBIE's guidance names waterproof coating to walls and roofs exposed to the weather, and waterproof membranes to deck and balcony areas, as restricted building work requiring a Licensed Building Practitioner Restricted building work. That tells you who is allowed to sign off a membrane and a certificate. It does not tell a waterproofer whether the licensed person applying it should be on wages or invoicing as a subcontractor, and plenty of owners conflate the two, assuming trust with a job also means the accounting side is already sorted.
What are my health and safety duties either way?
Under the Health and Safety at Work Act, you are a PCBU, a person conducting a business or undertaking, whether the person applying your membrane is an employee or a subcontractor, and WorkSafe says you owe a primary duty of care to keep them safe, so far as reasonably practicable, regardless of how they are engaged. If you run your waterproofing business as a sole trader on remedial or insurance work with no crew, WorkSafe treats you as both the PCBU and the worker at the same time.
WorkSafe describes a worker as anyone who carries out work for a PCBU, including an employee, a contractor, a subcontractor, or an apprentice learning the trade, and says the PCBU must manage health and safety for all of them, not only the people on wages Introduction to HSWA. WorkSafe's contracting chain guidance confirms that a self-employed contractor working alone is both the PCBU and the worker in that relationship Managing health and safety through the contracting chain. That duty exists separately from the tax and employment question, and getting the contractor-or-employee call right does not remove it.
How does getting this wrong show up in my numbers?
If your membrane applicator's pay sits in the wrong place in your accounts, your gross profit on every bathroom, balcony or basement job is wrong from the day it is quoted, not only on the jobs where a defect turns up after the warranty is issued. Wages that should be tracked against a specific job get buried in overhead, or a subbie invoice that should be a direct job cost gets spread thinly across the month, and either way the bank balance stops matching what the quote promised.
A waterproofing business runs tight margins because of cure times, flood tests and the risk of a defect surfacing after the certificate is signed, so there is little room for the job cost to be wrong before the warranty even starts. Checking this from memory, when the accountant asks months later whether the wet area crew are wages or invoices, is already too late to fix the jobs quoted in between. Starting from the data first, your own job costing and pay records, shows where the applicator's hours actually sit right now, rather than where you assumed they sat.
This is where AI agents can help. An AI agent is software that does a job the way you would, following your own prices, wording and rules, and in this case that can mean watching every job as it is quoted and flagging when a person's time or invoice is sitting against the wrong job or the wrong bucket, before the job closes rather than after. A second AI agent can keep the paperwork, the agreements and the hours lined up with how that person is actually engaged, so records match reality through a busy season of balcony, bathroom and insurance work rather than drifting apart.
This is general information, not legal, tax or employment advice. Check your own situation with the body named here or a qualified adviser.
Where can you check the current rules?
- Employee or contractor?, Employment New Zealand's explanation of the difference between an employee and a contractor, and the gateway test.
- Self-employed or employee, Inland Revenue's guidelines on what decides working status for tax purposes.
- IG 16/01, Inland Revenue's Interpretation Guideline on determining employment status for tax purposes, including the control and fundamental tests.
- Introduction to HSWA, WorkSafe's explanation of PCBUs and workers under the Health and Safety at Work Act.
- Restricted building work, MBIE's list of restricted building work, including waterproofing, and when a Licensed Building Practitioner is required.
- Managing health and safety through the contracting chain, WorkSafe's guidance for sole traders and subcontractors on PCBU duties.
- Employment status guidance, Inland Revenue's guidance that a business cannot change someone's employment status by relabelling them a contractor.
How does Data First Coaching approach this?
Data First Coaching does not start by asking whether your wet area crew are wages or contractors. It starts by pulling the numbers behind that question: what each job actually cost once the membrane work, the flood test and the certificate were done, and whether that matches what was quoted. Greg Allan built this method from running his own trade business, and the Trade Business Intelligence reads a waterproofing business's own job and pay data alongside years of coaching other trade businesses, to find where the gap between quoted and real gross profit actually starts. Working through how to fix that structure happens inside the Academy, among members who are open minded, innovative and willing to share, because the Trade Business Intelligence is powered by every member who joins it.
