Contractor vs Employee in NZ: The Tests and What Changes

Short answer: In New Zealand, whether you are a contractor or an employee depends on the true nature of the working relationship, not on what the paperwork calls it. Since 21 February 2026, a gateway test treats you as a contractor if you have a written agreement saying so and you meet every one of its conditions; if you do not, the four common law tests decide. Employees get PAYE, employer KiwiSaver contributions, 4 weeks’ annual holidays and paid sick leave. Contractors pay their own tax and ACC levies and have none of those minimum entitlements.

This guide follows Employment New Zealand’s employee or contractor guidance for the employment side and Inland Revenue for tax, as they stand in the 2027 tax year (1 April 2026 – 31 March 2027). If you have decided to work for yourself, how to become self-employed in NZ covers the set-up, and how to invoice as a contractor covers getting paid.

What is the difference between a contractor and an employee?

An employee works in someone else’s business under an employment agreement. A contractor, in the words of Inland Revenue’s employer’s guide (IR335), usually runs their own business and invoices for their services.

	Employee	Contractor
Agreement	Employment agreement	Contract for services
Who decides how, when and where	Mostly the employer	Mostly you
Income tax	PAYE deducted from wages	You pay it yourself through your IR3, or tax is withheld on schedular payments
ACC earners’ levy	Included in PAYE	You pay it on an ACC invoice, plus a work levy
KiwiSaver	Employer contributes at least 3.5%	No employer contribution
Annual holidays, sick leave, public holidays	Minimum entitlements apply	None
GST	Not applicable	Register once turnover reaches $60,000
Tools, vehicle, insurance	Usually supplied by the employer	Usually yours, and deductible

What is the gateway test for contractors?

The gateway test is a checklist added to the Employment Relations Act by the Employment Relations Amendment Act 2026. Employment New Zealand says it took effect on 21 February 2026 and is not retrospective. If an arrangement meets every criterion, the worker is a “specified contractor” and not an employee.

The worker must:

1. Have a written agreement that says they are an independent contractor, or that they are not an employee.
2. Be allowed to work for other people, though not at the same time as they are working under this arrangement.
3. Be able to choose when they work, or be able to subcontract the work to someone else. The client may only vet a subcontractor for qualifications the law requires, qualifications the work needs, or a criminal record.
4. Be able to turn down extra work without the arrangement ending.
5. Have had a reasonable chance to get independent advice before signing.

Miss any one and you are not automatically an employee: the common law tests below decide instead.

What are the common law tests for employee or contractor?

When the gateway test is not met, Employment New Zealand lists four tests that look at the whole relationship. No single one decides it.

• Intention. What both sides meant the relationship to be. It matters, but the label alone does not decide it.
• Control vs independence. The more control the business has over the work, the hours and the methods, the more likely the worker is an employee. Freedom to choose who to work for, where, when and with which tools points towards contracting.
• Integration. How far the worker is part of the business itself, for example working as one of the team, in the company’s uniform, doing its core work, rather than supplying a service from outside it.
• Fundamental or economic reality. Whether the worker is really in business on their own account: setting their own rates, carrying financial risk, supplying their own tools and vehicle, invoicing several clients, and able to make more by working efficiently.

Example. A painter works only for one building firm, set hours, in the firm’s shirt, with the firm’s gear. Their agreement says “independent contractor”, but they cannot subcontract or pick their days, so they fail the gateway test and look like an employee on the other tests. Another painter quotes their own jobs, uses their own van, works for three builders and private clients, and sometimes sends an offsider: in business on their own account.

For tax, Inland Revenue has its own guideline, IG 16/01 on determining employment status.

What changes for tax as a contractor?

An employer deducts PAYE from every pay. A contractor is paid the full invoice and settles income tax after the year ends, on an IR3 return, at the same personal tax brackets but after deducting business expenses. Once your tax bill passes $5,000 you move into provisional tax.

Some contract work is paid as schedular payments, where the client withholds tax before paying you. You choose your rate on form IR330C; if you choose your own rate it must be at least 10% for a New Zealand tax resident, and if you give the client no IR330C at all the non-notified rate is 45%. IR335 is clear that no student loan, KiwiSaver or ACC earners’ levy deductions are made from schedular payments; you pay your own ACC levies.

GST is the other new obligation: you must register within 21 days once your turnover reaches $60,000 in 12 months, as GST registration in NZ explains.

What changes for ACC?

An employee’s ACC earners’ levy is collected inside PAYE. A contractor is invoiced directly by ACC, after filing the IR3, for the earners’ levy, a work levy set by their industry, and the Working Safer levy.

The earners’ levy for 2026–27 is $1.75 per $100 of liable earnings including GST, on earnings up to $156,641, according to Inland Revenue’s ACC earners’ levy rates. The work levy is far higher for a roofer than a bookkeeper; ACC levies for the self-employed explains the rates and how to pay.

Do contractors get holiday pay, sick leave or KiwiSaver?

No. Employment New Zealand is direct about it: contractors are self-employed people, not employees, so they do not have minimum employment rights. Those rights, set out in its leave and holidays guidance, include:

• 4 weeks of annual holidays after 12 months of continuous employment
• 10 days of paid sick leave a year for eligible employees
• 12 public holidays a year, paid when they fall on a day the employee would normally work

KiwiSaver is the other gap. From the first pay date on or after 1 April 2026, an employer’s compulsory contribution is at least 3.5% of an employee’s gross pay, rising to 4% on 1 April 2028, according to Inland Revenue’s KiwiSaver changes page. A contractor gets no employer contribution; any saving is up to them.

How much more should a contractor charge than an employee earns?

Enough to pay for the leave, KiwiSaver and gear an employer would otherwise cover. A rough comparison, with every assumption shown:

	Amount
Employee on $35 an hour, 40 hours, 52 weeks (leave is paid)	$72,800
Employer KiwiSaver at 3.5%	$2,548
Employee package	$75,348
Contractor’s working weeks: 52 less 4 weeks’ holiday, about 2.4 weeks of public holidays and 2 weeks of sick days	about 43.6 weeks
Billable hours at 40 a week	about 1,744
Hourly rate to match the package	about $43.20

That $43.20 is before your own tools, vehicle, insurance, ACC work levy, unpaid admin time and gaps between jobs. Those expenses are deductible, but only with records: see self-employed expenses and receipts.

What should a contractor agreement include?

Business.govt.nz’s guidance on what to watch out for in contracts says written contracts are a must. A workable contractor agreement covers:

• Services: what you will do and deliver, and where.
• Payment: your rates or fees, how and when you invoice (weekly, monthly or on completing a stage), and when invoices must be paid.
• Expenses and allowances: whether you are reimbursed for your vehicle, tools, travel or accommodation.
• Time: expected hours, if any, how long the contract runs and whether it can be renewed.
• Insurance and licences: what cover and licences you must hold for the work.
• Ending the contract: notice periods and what happens to work in progress.

If you want the gateway test to apply, the agreement must say you are an independent contractor and give you the freedoms listed above. Write them in, make sure they are true in practice, and get independent advice before you sign. Builders and trades on construction contracts have extra payment claim rules, covered in how to invoice as a contractor.

Running the business side, and where does Keel fit?

As a contractor, nobody runs payroll for you. You quote, invoice, chase payment and keep receipts yourself, and those records show you are in business on your own account.

Keel: Invoice Maker & Receipts, an iPhone app by Ilura Technology OÜ, is built for that work. You create quotes that become invoices in one tap, send PDF invoices, capture receipts and expenses, log business mileage, and keep each item under its job and customer. “Who owes you” shows unpaid invoices and prepares reminder drafts that you review and send yourself; nothing is sent automatically. Records stay on your iPhone, with no account, no bank connection and no cloud sync, and the App Store privacy label reads “Data Not Collected”.

Keel does not decide whether you are a contractor or an employee, file tax returns, calculate tax or ACC, or connect to Inland Revenue. It is free with no invoice limit (free invoices carry a small “Made with Keel” footer), and Keel Lifetime is a one-time purchase of $249.99 USD (the App Store shows your local price) that adds custom branding, signature, premium templates and accountant-ready exports and reports. Keel on the App Store. More guides are on the New Zealand hub.

Frequently asked questions

What is the difference between an employee and a contractor in NZ? An employee works in someone else’s business under an employment agreement, has PAYE deducted and gets minimum entitlements such as annual holidays and sick leave. A contractor runs their own business, invoices for their services, pays their own tax and ACC levies, and has no minimum employment rights. The true nature of the relationship decides which you are, not the label.

What is the gateway test for contractors in NZ? It is a checklist in the Employment Relations Act that took effect on 21 February 2026. A worker is a specified contractor if they have a written agreement saying they are a contractor, can work for others, can choose when to work or subcontract, can decline extra work without losing the arrangement, and had a reasonable chance to get independent advice. If any criterion is missing, the common law tests apply instead.

Do contractors get holiday pay in NZ? No. Contractors are self-employed, not employees, so they have no minimum employment rights: no annual holidays, paid sick leave or paid public holidays. That is one reason a contractor’s hourly rate needs to be higher than an equivalent wage. Price your time so the weeks you do not work are covered.

Do contractors pay ACC in NZ? Yes. Contractors are self-employed for ACC purposes and pay the earners’ levy, a work levy for their industry and the Working Safer levy on an invoice ACC sends after their IR3 is filed. For 2026–27 the earners’ levy is $1.75 per $100 of liable earnings including GST. Schedular payments have tax withheld, but no ACC.

Do contractors get KiwiSaver contributions? No. Employer KiwiSaver contributions, at least 3.5% of gross pay from 1 April 2026, apply to employees only. No KiwiSaver deductions are made from schedular payments either. If you contract and want to keep saving, any contributions are up to you.

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This article is general information, not legal or tax advice. Consult a qualified New Zealand employment or tax professional.