Independent contractors: they’re everywhere. Many know what they’re getting themselves into, others not so much. The problem is that we’ve never had a robust definition of independent contractor (IC), and many employment hearings were delayed while the parties fought over whether someone was an employee or independent contractor. If established as an employee, what usually followed would be a successful unjustified dismissal claim, associated remedies, plus additional things like holiday pay and KiwiSaver contributions. The law now gives us a robust definition of ‘specified contractor’.

In my mind, this new law gives power back to workers (yep, even the centre-right government can do right by employees! Take that, unions!). I’ve talked to many people who are treated as independent contractors so that their employer can avoid holiday pay, KiwiSaver, other leave entitlements, as well as being able to sack people instead of following a fair process.

Criteria to be classified as an independent contractor (‘specified contractor’)

The paperwork match

There must be a written agreement clearly stating that the IC is an independent contractor or is not an employee.

Freedom to work elsewhere

The IC must be free to work for other clients. You cannot stop them from taking other jobs, except during the specific hours they are actually performing work for you.

Note: If you give them so many hours that it becomes physically impossible for them to work elsewhere, the law may still view them as “restricted.”

Control over time or sub-contracting

The arrangement must meet at least one of these two conditions:

Scheduling freedom: The worker isn’t forced to be available at specific times or for a minimum number of hours.
Right to sub-contract: The worker can hire someone else (Person C) to do the work. As the business, you can only vet this sub-contractor to check for legal requirements, qualifications, or criminal records—you cannot unreasonably block them.

Right to refuse extra work

The IC has the right to say “no” to any task that falls outside their original agreement. You cannot terminate their contract simply because they declined extra work.

Opportunity for advice

The IC must have been given a fair and reasonable chance to get independent legal or professional advice before they signed the contract.

There’s something glaringly missing here, that I’ve seen employers try to rely on – invoices with GST. The law is completely silent here, meaning it’s just not a factor. This was always a very weak indicator of whether someone was an independent contractor or not.

The known-knowns

Now we have a robust definition for an independent contractor, which means that delivery drivers, couriers, trucking contractors and many subcontractors have a clear framework going forward. And it’s very clear – on the day this becomes law, you need to have your ducks in a row, regardless of how long someone’s been working for you.

The known unknowns

If you have someone who doesn’t meet this new legal definition of an independent contractor, are they automatically an employee? Or will the ERA still apply the ‘real nature of the relationship’ three-part test? Could this reduce the workload of the ERA significantly, freeing up time for more deserving cases?

Transitional rules: what happens to existing documentation for independent contractors?

If a worker was already under a contract before the new law started (the commencement date), they are officially legally classified as a Specified Contractor from that date forward, provided they meet two conditions:

They fit the new definition: Their current working arrangement matches the 5-point “Specified Contractor” criteria we discussed earlier.
No active legal disputes: There were no existing legal proceedings (in the Employment Relations Authority or Court) already underway to challenge their status before the new law kicked in.

"Drawing a line in the sand"

The most important part of this rule is how it handles the “overlap” between the old and new rules:

Future status is locked: Once the new law starts, if the worker meets the criteria, they are a Specified Contractor from that day on.
Past disputes don’t change the future: Even if a worker later goes to court and wins a claim that they were “actually an employee” for the period before the law changed, that ruling does not change their status for the period after the law changed.

Why this matters to you

What you need to do now with your independent contractor arrangements

This creates a “clean break.” As long as your existing contracts meet the new 5-point definition on the day the law starts, you can be confident that those workers are legally classified as contractors moving forward, regardless of any historical arguments about their previous status.

If you employ independent contractors or subcontractors, check your documentation. One small flaw could mean that the person is an employee. And if you have no documentation, then you need to get some, very quickly.

You should also review your whole process for engaging independent contractors. We can help with that with our HR compliance support.

You may also be interested in our employment law training for a wider overview of how to make sure your day to day people activities and how you handle requests are legally compliant.

This is not a substitute for legal advice. If you need to speak to an employment lawyer, give us a shout and we’ll refer you.