Construction runs on subcontracting, and a substantial number of arrangements described as contracting would not survive examination. The consequences fall on the business engaging the worker, not on the worker.
The gateway test: what changed in February 2026
The Employment Relations Amendment Act 2026 received Royal Assent on 20 February 2026 and came into force on 21 February 2026. It introduced a statutory gateway test that changes this analysis significantly.
Where all five of the following are met, the worker is a “specified contractor” and cannot bring a claim about their employment status to the Employment Relations Authority:
- There is a written agreement specifying that the worker is an independent contractor.
- The worker is not restricted from working for others, except while actually performing work for the contracting party.
- The worker is not required to be available at set times, or has the ability to subcontract the work.
- The arrangement does not end solely because the worker declines additional work.
- The worker had a reasonable opportunity to seek independent advice about the arrangement before entering into it.
This is a genuine change. Previously the analysis was entirely about the substance of the relationship assessed after the fact. Now, an arrangement meeting all five criteria is protected from a status challenge.
The criteria are cumulative. Missing any one of them takes the arrangement outside the gateway, and the traditional analysis below applies.
Note also that the gateway concerns employment status under the Employment Relations Act. It does not change tax treatment, health and safety duties, or obligations under other legislation.
The label does not decide it
Where the gateway criteria are not all met, the Employment Relations Act requires the real nature of the relationship to be determined, and a court or the Employment Relations Authority will look past what the parties called it.
An agreement stating someone is an independent contractor is one piece of evidence among many. It carries little weight where the day-to-day reality looks like employment.
What is actually examined
- Control. Who decides when, where and how the work is done? A person told when to arrive, given tasks day by day and supervised in method looks like an employee.
- Integration. Are they part of the business or providing services to it? Wearing the company uniform, appearing on the org chart and attending staff meetings point one way.
- Economic reality. Do they bear the risk of profit and loss? A genuine contractor prices work, can make or lose money on it, and bears the cost of putting defects right.
- Ability to work for others. A person who works exclusively for one business, particularly under an expectation of exclusivity, looks like an employee.
- Equipment. Who supplies tools, vehicle and materials?
- Substitution. Can they send someone else? A genuine right of substitution points strongly to contracting.
- How they are paid — by the hour on a timesheet, or against invoices for defined work.
No single factor decides it. The overall picture does.
What it costs to get wrong
Where a contractor is found to be an employee, the business faces:
- PAYE arrears plus interest and potentially penalties.
- Holiday pay for the whole period, calculated on gross earnings.
- Sick leave, public holidays and alternative holidays.
- KiwiSaver employer contributions.
- Personal grievance exposure, including for a dismissal that was simply the end of an engagement.
- Minimum wage shortfall where the rate fell below it in any pay period.
These are calculated retrospectively across the whole relationship, which is why the numbers get large.
Where construction gets caught specifically
The labour-only subcontractor who is really a worker. Someone supplying only their labour, using your tools, working the hours you set, on your sites, exclusively for you, paid hourly against a timesheet, is very likely an employee whatever the paperwork says.
Converting employees to contractors. Where nothing about the work changes but the label does, the arrangement is vulnerable and the motivation is obvious.
Requiring a contractor to have a company. Interposing a company does not automatically change the analysis, though it makes the position more arguable.
Health and safety applies regardless
This is the point most often missed. Health and safety duties do not turn on employment status.
Where more than one PCBU has a duty over the same matter, each must consult, cooperate and coordinate. A principal retains duties for work it influences, and you cannot contract out of them by engaging a subcontractor.
The same applies to overlapping duties with labour hire. If you direct how work is done, you have duties toward the person doing it.
Making a genuine contracting arrangement work
If the relationship really is contracting, make the substance match:
- Contract for defined work or outcomes rather than hours.
- Let them control method and sequence within the requirements of the job.
- Do not require exclusivity.
- Have them supply their own tools and vehicle.
- Require their own insurance — public liability, and contract works where relevant.
- Invoice against work rather than timesheets.
- Allow substitution where practical.
- Confirm their licensing where restricted building work is involved.
Withholding tax
Certain contractor payments are subject to schedular payment withholding tax, including in some construction contexts. That is a separate question from employment status, and getting it wrong creates its own arrears.
Employment New Zealand publishes guidance on employment status, Inland Revenue publishes material on contractor payments and schedular payments, and WorkSafe publishes guidance on overlapping duties. All free.
General information only, not legal advice. Take advice on specific arrangements.
