There are many benefits to working as a contractor — it can pay better than doing a similar salaried job and be more flexible. But there are hidden costs to think about, too.

It’s a common mistake to assume what you’ll earn in a year simply by looking at your contract rate, eg $75 per hour X 8 hours a day X 5 days a week X 52 weeks a year = annual income of $156,000. There are several costs to include first, eg covering your own sick leave and ACC.

Sick leave

As a contractor, you don’t get paid sick leave. It’s a good idea to budget for at least five days a year when you’re too sick to work — and won’t get paid. Make sure you include this in your budget and when working out hourly rates.

Public holidays

As a contractor, you don’t get paid for public holidays that you don’t work. Make sure you include this in your budget and when working out hourly rates.

There are 10 national public holidays, plus one anniversary day per province, eg Auckland Anniversary Day. You may be able to work those days — especially if you work from home — to make up set hours you have agreed with a client, eg 40 hours a week. But you won’t be paid above your hourly rate.

If you work at your client’s workplace, check if it’s open on public holidays, eg between Christmas and New Year.


As a contractor, you are not automatically enrolled in a KiwiSaver retirement savings scheme. You must set that up and pay into it yourself.

Upfront costs

Unless you’re contracting for clients who expect you to use your own equipment, eg tools, you may have few set-up costs. If you are going to work from home and need to set up and equip an office, you can claim back these costs as tax expenses.

Getting loans

Borrowing money from a bank, eg for a mortgage or a car, can be harder if you’re a contractor. You’ll probably need:

  • a history of continuous work, eg two years

  • buffer savings, to show you can pay your mortgage even when out of contract work.

Fractured income

  • If you’re contracting, you may have to get used to unplanned gaps between the end of one contract and the start of another. Keep alert when working for any clues to what will happen with your contract. You should start looking for more work at least a month before your contract is due to end.

  • To give yourself peace of mind, save a buffer of up to three months’ income in case of unplanned breaks between contracts.

How to work out your hourly rate

It’s easier to settle on your rate when you have been contracting for a while and have a better feel for the market. If you’re starting out, a good method is to take the rate you would earn from a similar salaried job and add at least 20 per cent.

Things we can help you with before you start

You have thought through the pros and cons of becoming a contractor and want to get started.

You’ll want to make sure you set yourself up correctly, so unless you’re a financial expert, it’s a good idea to talk to an accountant. Questions we can help with might include:

  • Should I work under my own name — as a sole trader — or as a company?

  • Is it worth me registering for GST?

  • How much should I put aside for GST and income tax?

  • How should I pay my tax?

  • What records do I need to keep?

  • What expenses can I claim?