Major changes to New Zealand's employment law came into force February 20, introducing a strict four-part test to determine whether contractors are actually employees—a shift that could expose thousands of businesses to backdated holiday pay, KiwiSaver obligations, and significant legal liability.
The Employment Relations Amendment Act introduces what's being called the "Gateway Test," fundamentally changing how independent contractors are classified. According to analysis by legal experts, most existing contractor agreements weren't designed for this new framework and may not comply.
What the Gateway Test means
The new law establishes four criteria that must all be met for someone to be legitimately classified as an independent contractor rather than an employee. If any one of the four tests fails, the person is legally an employee—regardless of what their contract says.
The four tests examine: whether the person is in business on their own account, whether they have genuine independence in how they perform the work, whether the arrangement is genuinely commercial rather than employment in disguise, and whether the person bears genuine entrepreneurial risk.
This is a massive shift. Previously, New Zealand employment law looked at the overall relationship and substance of the arrangement. Now there's a strict, binary test. Pass all four criteria, and you're a contractor. Fail any one, and you're an employee with all the rights and protections that entails.
Who's at risk
The businesses most exposed are those that have been using contractors in roles that look a lot like employment. Think: contractors who work exclusively for one company, who use the company's equipment, who follow the company's processes, who don't advertise their services to others, who don't bear any meaningful business risk.
Under the old law, those arrangements might have been defensible as genuine contracting. Under the Gateway Test, many won't pass muster.
Industries particularly exposed include construction (where subcontracting is ubiquitous), digital services (where "freelancers" often work for single clients), transportation (where drivers may be classified as contractors), and professional services (where consultants may be long-term embedded in client organizations).
The financial exposure
Here's where this gets expensive for businesses that haven't prepared. If someone classified as a contractor is actually an employee under the Gateway Test, the business may be liable for:
- Backdated holiday pay (potentially years worth) - KiwiSaver contributions that should have been made - ACC levies at the employee rate rather than contractor rate - Minimum employment standards including minimum wage compliance - Unfair dismissal protections if the relationship ends
For businesses with dozens or hundreds of contractors, the potential liability could be existential. Even for smaller operators, reclassifying a few contractors as employees could mean tens of thousands of dollars in backdated obligations.
Why the law changed
The Gateway Test wasn't pulled out of thin air. It's a response to years of concern about the growth of precarious work in New Zealand, where employers were using contractor arrangements to avoid employment obligations.
Unions and worker advocates have long argued that many "contractors" are employees in everything but name—they have one employer, they follow that employer's instructions, they work set hours, but they miss out on holiday pay, KiwiSaver, sick leave, and other protections.
The Gateway Test is designed to prevent that dodge. By creating a strict test that's hard to game, the law aims to ensure that people who are genuinely doing employee-type work get employee protections.
What businesses need to do
If you're a business using contractors, mate, you need to get your agreements reviewed. The old templates won't cut it anymore. You need to ensure your contractor relationships actually meet all four Gateway Test criteria—and that the reality of the relationship matches what the contract says.
Some legitimate contractor relationships will be fine. If you hire a plumber to fix a leak, a graphic designer to create a logo, a lawyer to review a contract—those are genuine contracting relationships. The person is in business on their own account, serves multiple clients, bears business risk, and has independence in how they deliver the work.
But if you've got "contractors" who work exclusively for you, sit at desks in your office, follow your procedures, and are essentially indistinguishable from employees except for how you pay them—those relationships are now at serious risk.
The broader implications
This change is part of the same Employment Relations Amendment that unions are fighting over (see related story). While unions oppose other aspects of the legislation, the Gateway Test is one provision they support—it strengthens protections for workers in precarious arrangements.
For New Zealand's economy, the impact could be significant. The gig economy, the rise of freelancing, the flexibility that both businesses and workers have valued—all of that gets more complicated under a strict legal test that draws a bright line between employment and contracting.
Some businesses will adapt by properly restructuring contractor relationships to meet the test. Others will convert contractors to employees. Some contractor arrangements will simply end because they're no longer viable under the new rules.
What's clear is that February 20, 2026 marks a fundamental shift in how New Zealand regulates the employment relationship. Businesses that haven't prepared are about to find out the hard way.
