Being an independent contractor can pay a higher headline rate than an equivalent salary, but the two are taxed and structured very differently. Here's what changes in New Zealand.

How you're taxed

  • Employee: your employer deducts PAYE, the ACC earners' levy and any KiwiSaver/student loan every pay, and pays it to IRD for you.
  • Contractor: you're usually paid gross and pay tax yourself — often through provisional tax instalments during the year, then squared up in your income tax return. The income-tax rates are the same brackets employees use.

ACC

Employees pay only the earners' levy. Contractors also pay an ACC Work levy (CoverPlus), which varies a lot by occupation — this is an extra cost employees don't have.

KiwiSaver & leave

  • No employer KiwiSaver: contractors don't get the compulsory 3.5% employer contribution — you fund your own retirement saving.
  • No paid leave: there's no paid annual leave, public holidays or sick leave. To match an employee you either work more weeks or build leave into your rate.

GST and expenses

  • GST: if your contracting turnover tops $60,000 a year you must register for GST. GST is charged on top of your fees and passed to IRD, so it doesn't change your net income — but it's admin to manage.
  • Expenses: you can deduct genuine business expenses, which lowers your taxable income (but they're also real costs).

So which pays more?

A contractor usually needs a higher gross rate than an equivalent salary to end up level, once you account for the ACC work levy, no employer KiwiSaver, no paid leave, and business costs. It's a trade-off against flexibility and the ability to deduct expenses.

Compare your numbers

Use the contractor vs employee calculator to compare take-home side by side, or the pay calculator for the employee side.