What's Happening?
New Zealand is set to implement changes to its independent contractor laws through the Employment Relations Amendment Bill 2025. The bill introduces a 'Gateway Test' aimed at simplifying the classification of workers as independent contractors. Currently, New Zealand authorities use four overlapping tests to assess misclassification, which include the Intention Test, Control vs. Independence Test, Integration Test, and Fundamental/Economic Reality Test. These tests require a holistic inquiry into the relationship between the worker and the principal company. The new Gateway Test will serve as a preliminary filter, applicable when a company engages an individual contractor in their personal capacity. If the five criteria of the Gateway Test are met, the individual will be conclusively deemed a contractor without further inquiry. This change is expected to pass later in 2025, providing a more streamlined process for determining contractor status.
Why It's Important?
The introduction of the Gateway Test is significant as it aims to reduce the complexity and ambiguity in classifying workers as independent contractors in New Zealand. This could have substantial implications for businesses operating in the country, as it may simplify legal compliance and reduce the risk of misclassification disputes. By providing clearer guidelines, companies can better structure their engagements with contractors, potentially leading to increased efficiency and reduced legal costs. The change may also impact workers, offering them clearer criteria for their employment status and potentially enhancing their ability to negotiate terms. Overall, this development could influence the broader labor market dynamics in New Zealand, affecting both domestic and international businesses operating there.
What's Next?
Until the Employment Relations Amendment Bill 2025 receives Royal Assent, the existing tests will remain in effect. Companies are advised to continue structuring contractor engagements to ensure genuine worker autonomy, such as allowing nonexclusivity and enabling workers to serve other clients. The bill's passage will determine whether engaging workers in a business-to-business arrangement remains a best practice under the new Gateway Test. Businesses should prepare for the potential changes by reviewing their current contractor agreements and practices to align with the forthcoming legal framework.
