The Workplace Relations and Safety Minister, Brooke van Velden announced amendments will be made to the Employment Relations Act 2000 (“the Act”) to increase certainty for parties to an independent contractor relationship.
Currently, whether a worker is considered to be an independent contractor performing work based on a contract for services or an employee employed on a contract of service is determined based on the “real nature of the relationship” in accordance with section 6 of the Act.
In determining the real nature of the relationship, there are generally four tests that can be applied:
- Intention test, which focusses on what the parties intended the relationship to be, and looks at the contractual arrangements,
- Control test. The greater the degree of control exercised over the worker’s work content, hours and methods, the more likely it is that the person is an employee,
- Integration test, which considers whether the worker is an integral part of the business. Generally, the work performed by an employee will be fundamental to the employer’s business. However, work performed by a contractor is usually supplementary to the business, and
- Fundamental/Economic Reality test, which looks at whether the worker in business is on their own account. For instance, employees are paid a salary or wage subject to PAYE, by the employer automatically, in the set pay run. Employers will pay PAYE and ACC on an employee’s behalf. However, contractors will invoice for their charges or fees and are not subject to PAYE. They are also responsible for paying their own tax to the IRD and their own ACC levies.
The coalition Government has agreed to amending the Act to provide a “gateway test that businesses can use when responding to a claim that a person is an employee and not a contractor. If the working arrangement in question meet the four factors set out in the test, then the person is considered to be a contractor. If one or more of these factors are not met, then the existing [the real nature of the relationship] test will apply”.[1]
The criteria for the gateway test are:
- a written agreement with the worker, specifying they are an independent contractor, and
- the business does not restrict the worker from working for another business (including competitors), and
- the business does not require the worker to be available to work on specific times of day or days, or for a minimum number of hours OR the worker can sub-contract the work, and
- the business does not terminate the contract if the worker does not accept an additional task or engagement.
The coalition Government hopes to introduce these changes through the Employment Relations Amendment Bill in 2025.
In the meantime, “the real nature of the relationship” test will continue to apply. However, it will be a welcome relief to contracting parties to have some more certainty when and if the amendments to the Act are made.
If you have any questions about your contracting arrangements and contracts or agreements you have in place, please contact our
[1] Increased certainty for contractors coming | Beehive.govt.nz
