By Greg Allan, tradesman and creator of Data First Coaching
Why does it matter if a welder on the workshop floor is an employee or a contractor?
Whether a welder, boilermaker or site installer is an employee or a contractor changes who deducts PAYE, who covers holiday pay and who carries the health and safety duty if a structural steel install goes wrong. Get it wrong and Inland Revenue can treat the arrangement as employment from the start, with back pay and penalties landing on the fabrication business rather than the worker.
A fabricator that flexes up for a big balustrade run or a gate order often brings in extra hands under a subbie label, without checking whether the arrangement actually meets the legal tests. According to the IR335 Employer's guide, it is illegal to treat a true employee as self-employed to avoid deducting tax, and doing so can mean prosecution, fines and liability for the PAYE that should have been withheld. IR335 September 2026 Employer's guide
This is not a paperwork technicality. A workshop running structural steel, aluminium and stainless jobs side by side often has permanent welders, casual welders and contract fabricators on the floor at once, and the line between them gets blurred fastest when the order book is full.
What changed with the new gateway test for contractors?
Employment New Zealand's gateway test gives a fabrication business a defined set of criteria to check before calling someone a contractor, and the test is not retrospective. Employee or contractor?
Under the gateway test, a worker is a specified contractor if they have a written agreement saying they are independent, can work for others, can decline extra work, and can choose when they work or subcontract the job without having to vet who they bring in, beyond checking qualifications the work requires. A contract welder or site install crew who ticks these boxes sits outside the employee relationship. An arrangement that started before the gateway test came into force is assessed under the older common law test for the period before that date, and both tests can apply from that date onward, so a fabricator with long running contractor arrangements needs to check which test covers which period. Employee or contractor?
This matters to a fabricator because arrangements for site installs, galvanising pickups or powder coat runs often started years ago on a handshake, well before any written agreement was drawn up.
How do you check if the person welding for you is really a contractor?
You check by looking at who controls the work, not what the invoice says. Inland Revenue's guidance explains that a control test, an independence test, a fundamental test asking whether the worker is in business on their own account, and an integration test all help decide the answer, and no single test settles it alone. IG 16/01 Determining employment status for tax purposes
Ask yourself who decides the standard of the weld and the fit against the shop drawings. If you set the procedure, supply the steel, the folding and cutting gear, and the person turns up at your workshop on your hours, that points towards an employee. If a contract fabricator brings their own welding gear, quotes their own price for a site install, and can turn down the next job, that points the other way. Inland Revenue's own guidance lists questions such as whether someone else decides the amount and quality of output, and whether the worker can be prevented from working for anyone else. Self-employed or employee
Neither you nor the worker get to decide the answer just by writing contractor on the invoice. The working conditions, not the label, set the status.
What do you need to track so you're not caught out later?
You need records that show, job by job, who did the welding, cutting, folding or site install, under what agreement, and who carried the health and safety duty on site. This matters because a fabrication business is usually a PCBU, a person conducting a business or undertaking, and so is any contractor it brings onto a job. General risk and workplace management
When a fabricator brings in a subcontracted crew for a crane lift, a site install or a shared workshop job, WorkSafe expects the business to consult, cooperate and coordinate with the other PCBUs involved, to check the health and safety record of the subcontractors it hires, and to monitor them on an ongoing basis rather than just at the start of the job. PCBUs working together
A fabricator's own timesheets, job cards and invoices are the real record of who was treated as what, and they are also the data that shows whether a contractor arrangement has quietly turned into something closer to employment as the work, the hours and the control have changed over time.
This is general information, not legal, tax or employment advice. Check your own situation with the body named here or a qualified adviser.
How can AI agents help a fabrication business keep this straight?
AI agents are software that does a job the way you would, using your prices, your wording and your rules, and they can watch for the gap between how someone is paid and how they actually work. For a fabricator running a mix of permanent welders, casual labour and contract crews across several jobs at once, that gap is easy to miss until Inland Revenue or WorkSafe asks for the records.
Rather than relying on memory of who was onsite for which galvanising run or site install, a data first approach starts from the job cards, timesheets and invoices already sitting in the business. AI agents can flag a contractor whose hours and control over the work now look more like an employee's, or a worker paid as a contractor who has stopped supplying their own gear, so the fabrication business can check the arrangement before it becomes a problem rather than after an audit. The agent does not decide employment status, it surfaces the pattern in the fabricator's own data so a proper check can happen early.
Where can you check the current rules?
- Employee or contractor? - Employment New Zealand's gateway test and specified contractor criteria.
- Understanding types of workers - how the legal tests look at the actual work situation.
- IR335 September 2026 Employer's guide - Inland Revenue's PAYE obligations and penalties for misclassification.
- Self-employed or employee - Inland Revenue's employee guidelines and working conditions test.
- IG 16/01 Determining employment status for tax purposes - the control, independence, fundamental and integration tests.
- PCBUs working together - WorkSafe's duties when contracting.
- General risk and workplace management - the PCBU definition.
How does Data First Coaching approach this?
Data First Coaching looks first at what the fabrication business's own job cards, timesheets and invoices actually show about who is doing the welding, cutting, folding and site install work, and under what arrangement, rather than starting from how the owner describes it. Greg Allan's Trade Business Intelligence reads that data alongside ten years of coaching trade businesses to find where a contractor relationship has drifted toward employment, because that is usually where the risk starts, not in the paperwork itself. The how of fixing it is worked through inside the Academy, with members, because the Trade Business Intelligence is powered by every member, for every member, and that only works with owners who are open minded, innovative and willing to share.
