Contracting versus permanent in NZ: how much more should a contract rate be?

What the rate has to cover

An employee's salary comes with things a contractor pays for themselves. Under the Holidays Act 2003, a permanent employee gets four weeks of paid annual holidays after a year, up to 12 paid public holidays and 10 days of paid sick leave a year after six months. A contractor is paid only for the days they work.

The rate also has to cover:

• KiwiSaver. For an employee in KiwiSaver, the employer contributes at least 3.5% (3% if the employee has chosen the temporary lower rate). As a contractor, any contribution beyond your own comes from your rate.
• ACC. Self-employed people pay their own ACC levies, including a work levy that depends on the industry.
• Gaps between contracts. Weeks between roles earn nothing. This is the largest and least predictable cost.
• Running a business. Accounting, insurance, equipment, professional memberships and training.
• GST administration. Once your turnover reaches $60,000 in 12 months, or you expect it to, you must register for GST, charge it and file returns.

The uplift range, and how to justify it

The arithmetic is simple. A permanent salary of $100,000 is about $48 an hour over 2,080 hours, and with a 3.5% employer KiwiSaver contribution the whole package is $103,500. Then count the days a contractor could actually bill, after 20 days of annual leave, 12 public holidays and 5 sick days, and see what day rate recovers the same $103,500:

The rates in the table exclude GST. Once you are registered, you add GST at 15% to every invoice and pass it to Inland Revenue, so the client pays more than the rate and you keep the rate. Business costs, the ACC work levy and any insurance come on top of these figures. So a contractor who expects a month between contracts needs something like a third more per hour than the employee equivalent before costs, and more after them.

That table is also the justification. When an agency or client questions a rate, explain it the same way: this is the hourly equivalent of the permanent salary for the role, plus leave, KiwiSaver, ACC and the weeks between contracts.

Schedular payments and provisional tax

Many contractors in New Zealand are paid through the schedular payments system, where the client or agency deducts tax before paying you. You tell them your rate on an IR330C form. If you give no form, they must deduct tax at 45%. Most contractors can choose their own rate, as long as it is at least 10%.

Choose the rate carefully. Too low and you will owe a large bill at the end of the year; too high and the extra waits with Inland Revenue until your refund. If the tax left to pay at the end of a year is more than $5,000, you will usually have to pay provisional tax in instalments the following year. An accountant who works with contractors can help you set this up, and it is worth doing before your first invoice.

A worked comparison on take-home

Here is what the four-week-gap row looks like in your bank account, using the 2026/27 tax rates, the ACC earners' levy and KiwiSaver at 3.5%:

• Permanent at $100,000: about $2,764 a fortnight, with the employer's KiwiSaver contribution going into your account on top.
• Contractor at $64 an hour for 203 days: $103,936 a year. Take off $4,000 of business costs and the taxable income is $99,936, which comes to about $2,763 a fortnight before the ACC work levy.

The fortnightly cash lands almost level, but the employee also receives about $3,500 a year of employer KiwiSaver, less the tax on employer contributions, which the contractor has no equivalent for, and the contractor still owes the ACC work levy. So $64 is a floor rather than a target. Drop the rate to $58 and the contractor falls behind; raise it to $71 and a two-month gap is covered as well. The Offer Comparer works out the permanent side for two offers at these rates with no account, which gives you the figure the contract has to beat. For what every employee is entitled to, and what a contractor gives up, our guide to employment rights in New Zealand sets out the minimums.

Tracking rate history across contracts

Contracting rewards a good record. Keep, for each contract: the client, the agency, the rate, the length, the days actually billed, and the gap before the next one. After a year you will know your real billable days rather than guessing, and that one figure decides what rate you need.

Saving each contract as a job in jobtracker.co.nz, with its hourly rate, its hours and a note of its dates and days billed, keeps that history in one place.

Your rate history is also your strongest argument for a rise. If your last three contracts paid $64, $66 and $70 an hour, you have evidence of where the market is for your skills, and a clear starting point for the next negotiation.

Keep every rate and contract on record