K3 Insights

A Guide for Small to Medium Business Owners in New Zealand

Changes are on the horizon for how businesses classify contractors (non-employees) in New Zealand.

This is in response to situations such as the New Zealand Court of Appeal case, which upheld a previous Employment Court decision in August 2024, ruling that four Uber drivers were employees rather than independent contractors. This decision entitles them to employment-related benefits such as minimum wage, sick leave, and holiday pay. Businesses must ensure they are not exposed to similar liabilities through their engagement of contractors.

With the introduction of a new "gateway test," employers need to be proactive in understanding and applying the updated criteria. At K3 Human Resources, we want to make sure you're prepared and compliant. Here are our top three key points to consider:

1. Know the New Gateway Test Criteria
The new gateway test simplifies the process of determining whether a worker is a contractor or an employee. If all of the following criteria are met, your worker will be considered a contractor:

• There is a written agreement specifying that the worker is an independent contractor.
• The worker is not restricted from working for others.
• The worker either:

           - Is not required to work specific times, days, or a minimum period; OR

           - Has the ability to subcontract the work.

• Your business does not terminate the agreement simply because the worker declines additional tasks.

If your working arrangement does not meet all these criteria, the full test under section 6 of the Employment Relations Act 2000 will still apply.

2. Review and Update Your Contracts
Now is the perfect time to revisit your contracts to ensure they align with the new test. Make sure your agreements clearly state:

• The independent contractor status of the worker.
• No restrictions on the worker providing services to others.
• Flexibility in work schedules and subcontracting rights.
• Clear terms regarding how work is assigned and refusal of additional tasks.

Taking a proactive approach to assessing your alignment with new legislation—and identifying potential risks—can save your business from future disputes and ensure smooth compliance with the changes. This could also lead to negotiating updated contract terms with each contractor.

It is also worthwhile updating your contract templates so that only minor changes are needed when the law changes come into force.

3. Assess and Adjust Your Business Practices
Beyond just contracts, your day-to-day interactions with contractors must reflect independent working arrangements. Consider the following:

• Are your contractors truly independent? Ensure they have control over their schedules and can take on work from multiple sources.
• Do you provide flexibility in accepting tasks? Avoid creating obligations that resemble an employment relationship.
• Are your termination policies clear? Make sure that declining extra tasks is not a reason for ending the contract.

Being consistent in both paperwork and practice will help solidify contractor status and reduce legal risks.

Final Thoughts
The new gateway test provides a streamlined way to assess contracting arrangements, but businesses must still take care to comply. By reviewing contracts, refining business practices, and staying informed, small to medium business owners can confidently navigate these changes.

Need help reviewing your contractor agreements? K3 Human Resources is here to guide you through the transition.