The Government has proposed changes to employment law that are expected to be passed and come into effect soon, with the aim of providing greater certainty around contractor status. The proposed amendments would apply on a forward looking basis once enacted, meaning existing and past working arrangements will continue to be assessed using the current legal tests.
Why Contractor Status Matters
The distinction between an employee and a contractor is critical. Employees are entitled to minimum wage protections, paid holidays, sick leave, public holidays, notice, and the ability to raise personal grievances. Contractors generally do not receive these protections. Where a worker is incorrectly treated as a contractor when the reality of the relationship reflects employment, businesses can face claims for unpaid entitlements, tax and PAYE liabilities, penalties, and reputational risk. Importantly, a written agreement alone does not determine status if the day to day reality of the working arrangement points in another direction.
The Current Legal Test - The Real Nature of the Relationship
Under New Zealand law, decision makers look at the real nature of the working relationship rather than relying solely on labels or contract wording. The following factors are considered together, with no single factor being decisive.
• who controls how, when, and where the work is performed
• whether the worker is integrated into the business or operating an independent enterprise
• whether the worker bears financial risk and has the opportunity to make a profit
• who supplies tools, equipment, and materials
• whether the worker can subcontract or delegate the work
• whether the worker works for multiple clients rather than exclusively for one business
The overall picture of the relationship is what matters, not any single indicator on its own.
The Proposed Gateway Test for Contractors
The Employment Relations Amendment Bill proposes a new gateway test that, if enacted, would be used to determine contractor status for future working arrangements. The gateway test is not yet law and is still progressing through the legislative process. If introduced, the proposed gateway test would operate as follows.
• there must be a written agreement stating the worker is an independent contractor
• the worker must be free to work for other businesses and not restricted from doing so
• the worker must either not be required to work set hours or be available at specified times, or must have the ability to subcontract the work
• the contract must not be capable of being terminated solely because the worker refuses to perform additional work beyond what was agreed
• all criteria must be met for the gateway test to apply
• if the gateway test is not met, contractor status would continue to be assessed using the existing real nature of the relationship test
• the proposed gateway test would apply prospectively only and would not allow retrospective challenges to past working arrangements
Practical Indicators of a Genuine Contractor
A genuine contractor typically operates an independent business. They set their own rates, invoice for services, and manage their own tax obligations. They exercise control over how work is completed rather than being directed in detail. They often work for multiple clients and actively market their services. They bear commercial risk, such as being responsible for rectifying defective work at their own cost, and usually provide their own tools or equipment. They may also subcontract work or engage others, provided the agreed outcome is delivered.
Warning Signs of Misclassification
Concerns arise where a worker is required to work fixed hours set by the business, is rostered like an employee, or is restricted from taking on other work. Other warning signs include being embedded in internal systems, wearing uniforms, relying entirely on company equipment, being performance managed in the same way as employees, or having work allocated on an ongoing and open ended basis. Where the practical reality mirrors employment, the relationship may be treated as such despite being labelled a contractor arrangement.
What This Means for Employers
While legislative changes aim to provide greater certainty for future contracting arrangements, they do not remove the need for careful assessment. Written agreements must align with how the relationship operates in practice. Businesses should regularly review both their contracts and their operational approach to ensure contractor arrangements genuinely reflect independence. Where a role requires ongoing availability, close supervision, and integration into the business, an employment agreement is often the more appropriate and legally sound option.
Key Takeaway
A genuine contractor is defined by substance rather than title. Independence, autonomy, and exposure to commercial risk are central features of true contracting arrangements. As the legal framework evolves, businesses that focus on aligning both documentation and day to day practice will be best placed to manage risk and maintain compliant working relationships.
If you are engaging contractors or thinking about changing how work is structured in your business, now is a good time to review your arrangements. A short, proactive check can help identify risk early and avoid costly disputes down the track. If you would like an independent review of your contractor agreements or practical advice on whether a role is better structured as contracting or employment, get in touch for a confidential discussion.
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