Contractor Effective Hourly Rate Calculator NZ

Quick answer: Take what you bill in a year, subtract your business costs, and divide the profit by every hour you work, billed or not. At $110 an hour for 30 billable and 10 unbilled hours a week over 46 weeks, with $8,000 of costs, your time earns $78.15 an hour before tax and $56.50 after income tax and the ACC earners' levy.

Your charge-out rate is what you bill for an hour of client work, but it is not what an hour of your time earns. Every week has hours nobody pays for: quoting, invoicing, answering email, keeping the books, learning and finding the next contract. Every year has business costs too, from software and insurance to equipment and accounting. This contractor effective hourly rate calculator spreads your profit across all the hours you actually work, billed and unbilled, so you can see the rate your time really earns. You enter your hourly rate, the billable and unbilled hours in a typical week, the weeks you work in a year and your annual business costs. The calculator gives your effective hourly rate before tax, the same rate after income tax and the ACC earners' levy, your profit for the year and what you keep from it. It is a useful check when you are setting a rate, weighing a contract against a salaried role, or deciding whether admin time is worth handing to someone else. The number of unbilled hours is your own estimate, so try a few values and see what each extra hour of admin costs you. Tax figures are those for the 2026/27 tax year.

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Your Timesheets at jobtracker.co.nz logs your hours on a week grid or a timer that keeps counting when your phone locks, free on every plan. Career and Timesheets turns those hours into projects and rates, fixed fees and retainers, numbered invoices with GST only when you are registered, expenses and mileage, and the tax to set aside, from $4.99 a month billed yearly.

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$78.15
effective hourly rate before tax
Effective hourly rate after tax$56.50
Profit before tax a year$143,800
Income tax and ACC earners' levy$39,848
Take-home a year$103,952

The after-tax figures treat this as your only income and apply no tax credits. Self-employed people also pay an ACC work levy that depends on their classification unit; it is not included here.

How it works

Revenue is your hourly rate times your billable hours a week times the weeks you work. Your business costs come off that to give your profit before tax. The hours you work in a year are your billable and unbilled hours a week added together, times the same number of weeks. Your effective hourly rate before tax is the profit divided by those hours. For the after-tax rate, income tax is worked out on the profit using the 2026/27 individual rates, which run from 10.5% on the first $15,600 to 39% on income over $180,000, and the ACC earners' levy is 1.75% of the profit up to $156,641. Both come off the profit, and what is left is divided by the same hours. The gap between your charge-out rate and the effective rate is the price of the time you cannot bill and the money the business spends.

Worked example

A contractor charges $110 an hour and bills 30 hours a week for 46 weeks, which is $151,800 of revenue. Business costs of $8,000 leave a profit of $143,800. With 10 unbilled hours a week on top, they work 1,840 hours in the year, so each hour earns $78.15 before tax. Income tax on the profit is $37,331.50 and the ACC earners' levy is $2,516.50, leaving $103,952, or $56.50 for every hour worked.

LineAmount
30 hours at $110 for 46 weeks$151,800
Less business costs$8,000
Profit before tax$143,800
Hours worked: 40 a week for 46 weeks1,840
Effective hourly rate before tax$78.15
Less income tax and ACC earners' levy$39,848
Take-home a year$103,952
Effective hourly rate after tax$56.50

Related calculators

Data sources: income tax rates are maintained against Inland Revenue and the earners' levy against ACC, for the 2026/27 tax year.

Frequently asked questions

What is an effective hourly rate?

It is your profit for the year divided by every hour you worked, including the hours you could not bill, such as quoting, invoicing, admin and finding work. It is lower than your charge-out rate whenever some of your hours are unbilled or you have business costs.

Why should unbilled hours be counted?

Because they are time you spend running the business. At $110 an hour for 30 billable hours, adding 10 unbilled hours spreads the same $3,300 over 40 hours, so before costs and tax each hour worked earns $82.50, not $110.

What do I put in business costs?

Your own total of what the business spends in a year, such as software, insurance, equipment and accounting fees. The calculator takes it off what you bill before working out tax, so the after-tax rate is based on profit rather than revenue.

What does the after-tax rate leave out?

It takes off income tax at the 2026/27 rates and the ACC earners' levy, treating this as your only income. It leaves out the ACC work levy, which depends on your classification unit, and it applies no tax credits.