If your business engages contractors, subcontractors, consultants, or self-employed workers, an important legislative change could affect you.
From 21 February 2026, New Zealand’s new Gateway Test provides a clearer framework for determining whether a worker is genuinely an independent contractor or should instead be classified as an employee. The distinction matters. Incorrectly classifying a worker can expose a business to significant liabilities including backdated PAYE, KiwiSaver contributions, ACC levies, holiday pay, and penalties. Whether you operate in construction, agriculture, transport, professional services, or another industry, now is a good time to review your arrangements.
Why Was the Gateway Test Introduced?
Historically, the contractor versus employee question has been determined through a series of court decisions that formed the “common law test”. While this approach considered the full circumstances of each relationship, outcomes could sometimes be difficult to predict. The Gateway Test was introduced to provide greater certainty by establishing clear criteria that, if satisfied, confirm a worker is operating as an independent contractor. If all gateway criteria are met, the worker will generally be treated as a contractor. If the arrangement fails the gateway criteria, the traditional common law analysis still applies.
The Three Gateway Criteria
To qualify under the Gateway Test, the worker must satisfy all three requirements.
- Ability to Work for Others
- The worker must be free to provide services to other businesses or clients.
- This does not require them to have multiple clients at any one time. However, their contract and working arrangements should not prevent them from accepting work elsewhere.
- Control Over Work or Ability to Delegate, The worker must either:
- Control when and how they perform their work; or
- Have the ability to subcontract or delegate the work to another person.
- Where a business controls a worker’s hours, directs how tasks are performed, and prevents delegation, the arrangement may begin to resemble employment.
- Ability to Decline Additional Work
- A genuine contractor should be able to refuse additional work without putting the entire relationship at risk.
- If saying “no” to a future job results in termination of the arrangement, this may indicate an employment relationship.
The Test Applies Across All Industries
Although contractor arrangements are commonly associated with trades and construction, the Gateway Test applies much more broadly.
No industry is immune. Any business that engages self-employed individuals should consider whether its arrangements meet the Gateway Test requirements.
Important: The Gateway Test Is Not Retrospective
The Gateway Test applies from 21 February 2026 onwards. For periods before that date, the common law test continues to apply. This means businesses may need to consider both frameworks when reviewing long-standing contractor arrangements.
The practical outcome is:
- Pass the Gateway Test – contractor status is confirmed.
- Fail the Gateway Test – the common law test determines status.
Schedular Payments Remain Important
The Gateway Test determines whether someone is a contractor or employee. It does not replace existing tax obligations. Many contractors are paid under the schedular payment rules, which require tax to be withheld before payment. For businesses engaging contractors, key obligations may include:
- Confirming contractor status.
- Applying the appropriate withholding tax rate where required.
- Meeting Inland Revenue reporting requirements.
Contractor status and schedular payment obligations are separate issues and both need to be considered.
A Quick Health Check
The following indicators may help identify whether a relationship is more likely to be contracting or employment.
Indicators of a Contractor
- Works for multiple clients
- Controls when and how work is performed
- Can subcontract or delegate work
- Provides own tools and equipment
- Can decline work without penalty
- Invoices for services
- Paid per project, milestone, or deliverable
Indicators of an Employee
- Works primarily for one business
- Required to work set hours
- Directed on how work is carried out
- Cannot delegate work
- Appears on regular rosters
- Paid wages or salary
No single factor is decisive, but arrangements that sit predominantly in the second category warrant further review.
What Happens If You Get It Wrong?
If a worker is ultimately found to be an employee rather than a contractor, a business may become liable for:
- Backdated PAYE deductions
- Employer KiwiSaver contributions
- ACC employer levies
- Annual leave and sick leave entitlements
- Public holiday payments
- Inland Revenue penalties and interest
The financial impact can be significant, particularly where arrangements have existed for several years.
How CooperAitken Can Help
The Gateway Test provides greater certainty, but every arrangement still needs to be assessed based on its own facts and circumstances.
We recommend that businesses review their contractor arrangements, agreements, and payroll processes to ensure they remain compliant under the new rules.
A proactive review today could help avoid substantial costs and disputes in the future.
Need help reviewing your contractor arrangements? Contact the CooperAitken team to discuss how the Gateway Test may affect your business.
