One of the most common people issues I see is uncertainty about whether someone should be engaged as an independent contractor or treated as an employee. The challenge is that arrangements rarely stand still. A contractor initially engaged for a specific project may become a regular part of the team over time, or a consultant's role may gradually expand beyond what was originally contemplated. As those relationships evolve, the gap between what the contract says and how the arrangement operates in practice can start to widen.
While the contractor "gateway test" has now been in force for several months, it provides a useful reminder for organisations to review existing arrangements and ensure that both the documentation and the day-to-day reality of the relationship remain aligned.
The distinction remains important. If a contractor is subsequently found to be an employee, organisations may face exposure to employment-related liabilities and obligations that were never anticipated when the arrangement began.
Why review now?
Over the years, many businesses and not-for-profit organisations have accumulated a variety of contracting arrangements with:
- consultants and advisers;
- project managers;
- trainers and facilitators;
- IT and digital specialists;
- marketing and communications providers; and
- governance and professional services contractors.
Most of these arrangements are entirely legitimate. The question is whether the agreement and the practical reality continue to support contractor status. Many organisations have contractor arrangements that were put in place years ago and have never been revisited.
A simple review might include asking:
- Have our contractor templates been updated to reflect the current legal framework?
- Were contractors given a reasonable opportunity to obtain independent advice before signing?
- Can they genuinely work for other clients?
- Do they have the ability to accept or decline work?
- Does the relationship operate in practice as the agreement says it should?
Importantly, if an arrangement does not satisfy the statutory gateway requirements, the traditional assessment of the "real nature of the relationship" will still apply.
Gateway Test Takeaway
The gateway test was designed to provide greater certainty, but it is not a "set and forget" exercise. If your organisation regularly engages contractors, now is a good opportunity to undertake a quick health check of your agreements and working arrangements. A short review today may help avoid a much more difficult employment status issue tomorrow.
The following resources are a useful starting point for organisations reviewing contractor arrangements and considering whether existing agreements and working practices remain fit for purpose.
- Employment New Zealand, Employee or Contractor: https://www.employment.govt.nz/starting-employment/types-of-worker/employee-or-contractor
- MBIE, Employment Relations Act Amendments: https://www.mbie.govt.nz/business-and-employment/employment-and-skills/employment-legislation-reviews/employment-relations-act-2000-amendments
