The Uber effect: The employee-contractor debate reignited

By Andrea Scatchard, Brenna Shepherd & Nathan Hodge

The question of whether a worker is an employee or a contractor is one that businesses keep coming back to!

Employees receive minimum entitlements such as holiday pay, benefit from protections as set out in employment legislation (such as the right to take personal grievances) and must have PAYE deducted from their pay. Contractors, by contrast, do not receive those employment benefits, must manage their own tax affairs, and can usually claim deductions for expenses incurred in earning their income. A recent Supreme Court case has pushed that age-old question back into the spotlight and has shown just how significant the consequences can be when worker status is challenged.

The case that brought the issue back

In November 2025, the Supreme Court ruled in Rasier Operations BV v E TŪ Incorporated [2025] NZSC 162 that four Uber drivers were employees while logged into the Uber app, ending a four-year dispute about their legal status. The Court focused on the real nature of the relationship, not just how they described themselves in the contracts. The Court found Uber had significant control over the drivers through fare-setting and performance management, and that the drivers were integrated into the business rather than running their own businesses. This decision had the ability to seriously disrupt the rideshare and delivery sectors.

Employment law moved quickly

Following the earlier case decisions in the lower courts, the Government had signalled that it would legislate to protect the independent contractor status that parties may agree to, primarily to provide certainty for employers who might otherwise face claims challenging a person’s employment status. This came to fruition with changes to the Employment Relations Act 2000, effective from 21 February 2026, by introducing the new concept of a “specified contractor”.

To determine if a worker is a “specified contractor” a new gateway test has been introduced. Where workers meet all requirements of the gateway test, they are considered a contractor for legal purposes and this cannot be challenged. To meet the gateway test, all of the following must be satisfied:

• a written agreement that says the individual is an independent contractor, or is not an employee;
• they are allowed to work for another person (but not simultaneously);
• they can choose when to work/are not required to work at certain times or for minimum periods, or they can subcontract the work;
• they can decline an offer to work without the arrangement being terminated; and
• they have had a reasonable opportunity to seek legal advice before signing the agreement.
  

If a worker doesn’t meet all requirements of the gateway test, they will not be a specified contractor and common law should be used to determine if the worker is a contractor.

Why tax law appeared to be misaligned

Even after the employment law change, there was still the question of whether tax law would respect the legal status of a specified contractor. There is no definition of “employee” in the tax legislation, which means we look at common law to determine whether someone is an employee or not for tax purposes. The Courts have devised the following tests to assess whether a person is an employee or independent contractor:

• the intention test;
• the control test;
• the independence test;
• the fundamental or business test; and
• the integration test.
  

You can read more about the Inland Revenue approach to these here but broadly this requires an assessment of whether the person is truly in business themselves or not – which is what the Supreme Court focused on in the Rasier Operations case.

Given the Supreme Court decision in 2025 represents the most recent common law decision on the matter, this meant that we could have had a mismatch where a worker may be treated as a contractor for employment law purposes (because they meet the definition of a specified contractor) but for tax law they could still be an employee (by reference to common law).

Last-minute changes

The good news is that the tax legislation was amended in March to deal with this problem.

The amendment ensures that workers who meet the new definition of “specified contractor” and who are treated as contractors for employment law purposes, are also treated the same way for tax purposes. The changes are backdated and take effect from 21 February 2026, the date that the definition of specified contractor was enacted.

For businesses engaging with specified contractors, this should give both the workers and the businesses greater confidence that the tax treatment they are following is correct, at least on a prospective basis.

What does this mean?

This is a helpful change, but it is not an answer for every arrangement.

Whether someone falls within the new specified contractor rules will still depend on the facts and on whether the gateway test is met in full. Businesses should not assume that every contractor arrangement will operate in exactly the same way and there will be many contractor relationships where the individual will not be a specified contractor. In such situations, it will still be necessary to consider the common law tests above and determine whether the person is truly an independent contractor.

If you would like to discuss how these changes might apply to your business or contractor arrangements, please get in touch with your usual Deloitte advisor.