There is now a quicker way to confirm whether someone is genuinely a contractor, or if they should be classed as an employee...
If you are hiring extra help, you have likely wondered whether you are dealing with a contractor or an employee and getting this wrong can lead to serious legal and financial headaches.
Back in 2022, things shook up when the Employment Court ruled that Uber drivers in New Zealand were employees, not contractors. That decision made many business owners nervous, especially in industries like construction, plumbing, electrical, and other trades where contracting is common.
Fast forward to 21 February 2026, and the law has changed again. The Employment Relations Amendment Act 2026 introduced a new gateway test to make things clearer and more predictable.
In simple terms there is now a quicker way to confirm whether someone is genuinely a contractor; but only if they meet all the required criteria.
Legal Tests to decide an employee or contractor
The gateway test is designed to give greater clarity for business owners when choosing to bring in contractors to complete work and reduce disputes over these classifications.
The gateway test does not apply retrospectively. This means that if a contractor arrangement began before 21 February 2026 and you are uncertain whether it is the correct type of arrangement, you can rely on the common law test for the period prior to that date. From 21 February 2026 onward, you should apply both the gateway test and the common law test to assess the arrangement.
Gateway Test
If a worker meets all the criteria in the gateway test, they are considered a contractor.
The worker is a contractor if they:
- have a written agreement that says:
- they are an independent contractor, or
- they are not an employee, and
- are allowed to work for another person, but not at the same time as working for the person they have an arrangement with, and
- can choose when to work, or can subcontract work to a third party: without needing to vet them, or with the need to vet them to check they have the qualifications required by law, or other qualifications needed because of what the work involves, or a criminal record (or both), and
- can decline an additional offer of work without the arrangement ending, and
- had a reasonable chance to get independent advice before signing the arrangement.
If any of the gateway test criteria are not met, the common law test applies. The worker can still be considered a contractor under the common law test.
Common Law tests
If you have looked at the gateway test and the worker is not considered a contractor under this, check the true nature of the relationship under the common law test.
The courts have developed four legal tests to help determine whether someone is an employee or a contractor. No single test will provide a definitive answer; instead, each situation must be assessed based on its own facts and circumstances.
Intention Test
This test looks at what the parties intended when they entered into the working relationship. An employee typically works under an employment agreement and is entitled to benefits such as holiday pay and public holiday entitlements. In contrast, a contractor usually operates under a contract for services and does not receive these employment-related benefits.
Control vs Independence Test
This test examines the degree of control over the work. Employees generally work set hours, are supervised, and follow directions from their employer, with limited control over how, when, and where they work. Contractors, on the other hand, tend to have greater independence. They control their own work methods, availability, and work conditions, and are not usually subject to direct supervision.
Integration Test
This test considers how integrated the worker is within the organisation. Employees are typically part of the business, working as members of a team, using the employer’s equipment, and often wearing a company uniform. They are also usually reimbursed for work-related expenses. Contractors, in contrast, operate more independently, often using their own tools, being paid based on results, and not being closely integrated into the company’s structure.
Fundamental/Economic Reality Test
This test focuses on the financial aspects of the relationship. Employees are generally paid wages or salaries, receive at least minimum wage, and have their taxes managed through their employer. Contractors, however, charge fees, may be registered for GST, and are responsible for paying their own taxes and ACC levies. They can make a profit or incur a loss, take on financial risk, and may work for multiple clients. Contractors often advertise their services, send invoices, and can subcontract or delegate work to others, unlike employees who usually work for a single employer and cannot pass their work on.
What this means in practice
The gateway test is now your first checkpoint. If a person meets all the criteria, you have certainly got a contractor. If they do not, then you fall back on the more detailed (and sometimes messy) common law test. If you set up your contracting arrangements so they fully meet the gateway test, that way, you avoid grey areas.
Conclusion
The Gateway Test is a positive change for the industry. It gives business owners a more straightforward way to structure working relationships and reduce risk. But the key is what is written in the contract must match what happens on site.
If there is a mismatch, the protection of the gateway test may not hold up.
A quick review of your current contractor agreements could save you a lot of trouble down the track.
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