Contractor OR Employee?

It has been established through case law a series of tests to determine the true nature of the

employment relationship.

Even with a signed Contractor’s agreement, this alone does not mean a person is a Contractor as in reality they may be treated like an Employee.

Sometimes an Employer may require an Employee to submit invoices or pay with holding tax for accounting purposes and to avoid paying PAYE and ACC levies. They may use this

to claim that person is a Contractor when it suits them, .however in all other matters treat them as an Employee.

There are many areas to consider such as, control, integration into the business, financial, day to day practice what the parties understood they were agreeing to.

Proposed change

The Bill seeks to clarify the definition of a Contractor and Employee by identifying five key areas that will determine if a person is a Contractor or not.

All five requirements must be met to be a Contractor.

The five areas are:

• A written agreement stating the person is an independent contractor; and

• That person can work for another business; and

• That person is not required to be available to work on specific times of day or days, or for a minimum period OR that person can subcontract the work ; and

• The business does not terminate the contract if the worker does not accept an additional task or engagement that is additional to the work the worker agreed to perform under the agreement; and

• That person had a reasonable opportunity to seek independent legal advice before entering into the arrangement.

For example. a person is denied a reasonable opportunity to seek independent advice or the person felt pressured into signing or not told of this right, then they may still seek a declaration that they are an Employee and be able to pursue a grievance as an Employee, and be entitled to claim sick leave, annual leave, kiwisaver etc.

If these requirements are not met then a person may still seek to be declared an Employee and be covered by the Employment Relations Act,.and other associated Acts such as Wages Protection Act and Holidays Act etc.

Impact

The proposed changes give directions to the ERA and courts as to what will be considered important in determining if a person is an Employee or not.

It is not clear how the existing case law tests will be impacted or integrated into the proposed changes

What is clear is that having a signed written agreement will carry a lot more weight in determining if a person is an Employee or Contractor.

Employers may feel confident in hiring a person as a Contractor as long as they have met the proposed five requirements .

Advice

Contractors are not able to join a Union as they are viewed as being in business for themselves and not an Employee.

Contractors are not covered by other Acts such as Minimum Wage, Wages Protection, Kiwisaver, Holidays Act etc, and take on other obligations such as payment of various taxes, ACC levies, Consumer Guarantee Act, Fair Trading etc.

If a Contractor has a dispute with the Employer, they cannot access the ERA, and will need an agreed alternative dispute resolution system such a paying for private mediation or arbitration, There is no obligation to act in good faith by either party, and breaches of contract are subject to commercial law pursued in District and High courts.

If a person is offered a Contractor’s agreement, they should be encouraged to get advice before signing anything,

If the Employer has advised that person to get independent legal advice and they decide not to , and proceed to sign a Contractor’s agreement, they may find it difficult to argue that they are an Employee and therefore will not be covered by the Employment Relations Act,

Disclaimer: these are opinions and views of NUPE and should not be substituted for legal advice. If this article has raised any questions or concerns please contact us directly

Public submissions are now being called for the Employment Relations Amendment Bill 2025

The closing date for submissions is 2.00pm on Wednesday, 13 August 2025