Market analysts and recruitment consultants say the new Employment Relations Bill may kill the independent contractors market and fuel the exodus of skilled workers from New Zealand.
The existing bill plans to hit current working relationships by changing what determines whether someone is a contractor or permanent employee.
Labels like "independent contractor" will have little effect and there is a general assumption in the industry that it will lead to many contractors being re-classed as permanent employees.
Under the proposed bill, contractors and unions will receive the right to demand that they and groups of workers be treated as employees, with rights, for example, to holiday pay, depending on the nature of their work.
Employers feel they would then be burdened with extra costs and staff they do not need.
Contractors also fear they will lose the tax and better pay benefits of being a contractor.
Candle IT &T contracts services manager for Auckland Christine Fitchew says: "In the worst case scenario, there would be no more independent contractors."
Agencies such as Candle and the New Zealand Recruitment and Consultant Services Association have made submissions to the government to clarify the planned changes.
Fitchew says because permanent employees are entitled to holiday pay and other benefits, their costs are double those of contractors.
"This will kill the advancement of projects. We will also lose a lot of IT knowledge to overseas [because of tax and hourly rate benefits]," she says.
Geoff Palmer, a contractor for 13 years in various countries, and author of Computerworld's IT Contractors Handbook says: "They brought in similar legislation in the UK. There was a mass exodus of contractors from Britain to Europe and the US. The main drawcard to being a contractor is the pay rates and tax benefits."
Firms could employ people on shorter contracts, say three months, as a loophole, but this increases staff turnover and makes projects more expensive and take longer.
Jane Fanselow, a director for the New Zealand Recruitment and Consultants Services Association, says the changes will deter employers from taking people on because firms will lose flexibility.
The bill is also wrong in assuming there is an inherent imbalance of power between employer and worker, Fanselow says.
"In a skill short market [like IT] a candidate that has particular competencies in short supply is not at a disadvantage," she says.
While lower paid staff may need protection, the contract market is self-regulating. "If they did not get good rates, they would not work," says Fanselow.
Auckland lawyer John Hannan, a partner of Phillips Fox, advises firms to clarify their arrangements with contractors in time for the changeover on August 1.
"If you have a contractor and they are closely integrated with the business and not able to go and work anywhere else, there's a real risk they are going to be regarded as employees," he says.
Employment Minister Margaret Wilson was unavailable for comment as Computerworld went to press.