How to negotiate a contract rate as a contractor in NZ

Anchoring on market rate, not last contract

Your last contract rate is one data point, set at a different time, for a different client and perhaps in a weaker market. Starting from it invites the client to treat it as a ceiling. Start instead from what the work is worth now.

Build that figure from several sources: current ads for similar contracts that state a rate, recruiters who place contractors in your field, and people you know doing similar work. Then check it against what you need, including the time between contracts, your own KiwiSaver, leave, equipment and professional costs, which an employer would otherwise cover. Our article on contract rates against salary sets out that arithmetic in full.

Decide three numbers before any conversation: the rate you will ask for, the rate you would be happy with, and the rate below which you would decline. Say the first one plainly and then stop talking.

Extensions as the natural negotiation point

The easiest time to raise your rate is when a contract is extended. By then the client knows what you deliver, replacing you would cost them time and money, and the end date gives both sides a natural reason to talk.

Raise it early, a few weeks before the end date rather than on the last day, and base it on what you have delivered and on the market: "I've enjoyed the work and I'm glad to continue. For the extension my rate would be $X an hour, which reflects the scope the role has grown to and current rates for this work." If the answer is no, you still have time to line up the next contract.

Rate versus scope versus hours

If a client cannot meet your rate, change something other than the price. Reducing your rate for the same work sets a lower baseline for every future conversation. Changing the scope, hours or length keeps the rate where it is.

• Scope: a smaller piece of work at your rate, or a clearly limited role.
• Hours: fewer days a week, or a cap on hours, at your rate.
• Length: a longer guaranteed term can justify a small reduction, because it removes weeks you would otherwise spend between contracts.
• Terms: payment within 7 days rather than the 20th of the month, and whether the rate is plus GST, or paid time for handover and onboarding.

Put any change in writing, including the rate, the hours and how overtime or extra days are treated.

Agency margins and asking about them

When a recruitment agency places you, the client pays the agency, and the agency pays you less than it charges. That margin pays for the agency's work and is a normal part of contracting. It is still reasonable to ask how it works: whether it is a fixed percentage or a fixed amount, and what the client is being charged.

Not every agency will tell you, but asking signals that you understand the arrangement, and knowing the margin helps you judge whether there is room to move. Watch for two agencies submitting you to the same client, which can cost you the role. Our guide to working with recruitment agencies covers how to manage that.

Check how you will be paid, too. As a contractor on schedular payments you give the payer an IR330C with your tax rate, at least 10% (15% if you are a non-resident on a temporary work or entry visa) unless Inland Revenue gives you a tailored rate, and a payer with no IR330C from you must deduct 45%.

Keeping the rate history so you never go backwards

Keep a simple record of every contract: the client, the agency, the rate, the hours, the dates, and what the work involved. Over a few years it shows how your rate has moved, gives you evidence for the next negotiation, and stops you accepting less than you earned two years ago without noticing.

In jobtracker.co.nz, each contract you pursue can be saved as a job with its hourly rate, its hours and a note of its dates. For the conversation itself, the Negotiation Coach, part of On the Move, drafts the words for the call and the email after it: enter the rate on the table and the rate you want. It is written for job offers, so adapt its fall-back ideas, such as extra leave, to a contract. Our guide to salary negotiation covers the same principles for permanent roles.

Know your number before the call