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Before we get into this, a big shout out to Emma at KnowHow.
Emma is an absolute expert in employment law and someone I cannot speak highly enough about. She made me aware of this change and just how important it is for business owners to understand it properly. She’s part of my BNI group and if you are looking for a sharp, practical employment specialist, I highly recommend Emma and the team at KnowHow.
Now, onto the change itself.
Because this one is big.
Why This Matters Right Now
The Employment Relations Amendment Bill has passed its third reading and will take effect the day after Royal Assent.
For many business owners in New Zealand, this is not just another technical legal update.
It directly affects how you engage contractors.
It changes risk.
It changes certainty.
And it changes how you should draft your agreements.
If you use independent contractors in your business, this matters.
The Big Shift: The Specified Contractor Gateway Test
Until now, contractor disputes have largely been decided using what is known as the “real nature of the relationship” test.
That meant even if your agreement said “independent contractor”, the Employment Relations Authority could look past the contract and decide the person was actually an employee.
That created uncertainty.
You could believe you had a contractor.
Years later, you could be told you had an employee all along.
That exposed businesses to:
- Backdated leave entitlements
- KiwiSaver contributions
- PAYE obligations
- Unjustified dismissal claims
- Penalties
The new legislation introduces something different.
It introduces a statutory Gateway Test.
And a new legal category called the Specified Contractor.
What Is a Specified Contractor?
The Bill creates a structured checklist.
If your arrangement meets every element of the Gateway Test, the individual will be legally classified as a Specified Contractor.
That means they are not an employee.
But here is the catch.
Every single element must be satisfied.
If even one requirement is missing, you fall back into the uncertain real nature test.
That is why reviewing contracts now is critical.
The Gateway Test Requirements Explained Simply
To qualify as a Specified Contractor, your arrangement must include:
1. A Written Agreement
There must be a written contract clearly stating the person is an independent contractor and not an employee.
Handshake deals are not enough.
Verbal understandings are not enough.
2. No Restrictions on Working Elsewhere
You cannot restrict the contractor from working for other businesses.
The only exception is during the actual time they are performing work for you.
If your contract says they must work exclusively for you, you may fail the Gateway Test.
3. Flexibility or Subcontracting Rights
The contractor must have:
- Flexibility around hours
OR - The ability to subcontract the work
This is critical.
If you tightly control hours like an employee arrangement, that creates risk.
If subcontracting is permitted, any vetting must be limited to statutory requirements such as licensing, registration or certification.
You cannot create extra approval layers that effectively block subcontracting.
4. You Cannot Terminate for Refusing Extra Work
If a contractor declines additional work beyond what was agreed, you cannot terminate the arrangement because of that refusal.
If you can, you likely fail the Gateway Test.
5. Reasonable Opportunity for Independent Advice
The contractor must have had a reasonable opportunity to seek independent advice before entering into the agreement.
They do not have to take the advice.
But they must have had the opportunity.
This is an area many older agreements will fail on.
What If You Fail the Gateway Test?
If any element is not met, you revert to the real nature of the relationship test.
That means the Authority looks at:
- Control
- Integration
- Economic dependence
- Intention of the parties
- How the relationship operates in practice
And you are back in grey territory.
For employers, that means risk remains.
What This Means for Employers Now
There are three immediate actions to consider.
1. Review Your Contractor Agreements
Many contractor agreements in NZ will not currently satisfy every element of the Gateway Test.
Particularly around:
- Subcontracting rights
- Flexibility
- Termination wording
- Independent advice clauses
Using a structured assessment like the [Gateway Test and Specified Contractor Test] helps you quickly determine whether your agreement aligns with the new statutory framework.
If you engage multiple contractors, this becomes even more important.
2. Make Sure Behaviour Matches the Contract
Even if your written agreement looks compliant, your actual working relationship must align.
If you:
- Dictate strict hours
- Prevent outside work
- Treat them like an employee day to day
- Penalise them for declining work
You may undermine your legal position.
Running your arrangement through the [Specified Contractor Gateway Test assessment] gives you clarity on risk points in both documentation and operational structure.
3. Reconsider Your Hiring Strategy
The Gateway Test increases certainty.
But only if you comply fully.
This gives business owners a clear choice:
- Structure contractor relationships properly under the Specified Contractor model
OR - Accept the uncertainty of the real nature test
For businesses that rely heavily on contractors, this change is strategic, not just legal.
The Key Risk Areas to Watch
The biggest danger zones I see are:
- Exclusive service clauses
- Fixed 9–5 contractor arrangements
- No subcontracting rights
- Termination tied to refusing additional work
- No evidence independent advice was offered
If you are unsure whether your arrangement qualifies, running it through the [Gateway Test and Specified Contractor compliance check] allows you to step through each statutory requirement clearly.
Final Thoughts
This legislation is about clarity.
But clarity only exists if the Gateway criteria are met in full.
If you engage contractors, now is the time to:
- Review your agreements
- Review your operational model
- Confirm alignment with the Specified Contractor Gateway Test
Using the [Gateway Test and Specified Contractor Test] ensures you are assessing your position against the exact statutory requirements introduced by this Amendment Bill.
And again, if you want expert employment advice tailored to your situation, Emma at KnowHow is someone I highly recommend speaking to.
This is not about panic.
It is about preparation.
Because once Royal Assent is granted, the law changes immediately.
And your risk profile changes with it.
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