Thinking about making the switch from employment to contracting, or evaluating whether a contract rate is genuinely better than a salary offer? The comparison is not as straightforward as it looks. Contractors pay their own ACC levies, receive no employer KiwiSaver, have no paid leave or sick days, and face extra accounting costs. This calculator applies full 2026/27 IRD tax logic to both scenarios and tells you the true take-home difference, the contractor rate needed to match your salary, and exactly what you give up by leaving employment.
Enter your employee salary and contractor income to see the full comparison
When you compare a contractor rate to an employee salary in New Zealand, the headline numbers are almost always misleading. A contractor earning $130,000 per year does not take home $30,000 more than an employee on $100,000. Once you account for ACC self-employment levies, the absence of employer KiwiSaver contributions, higher accounting costs, and the loss of paid leave, the true comparison looks very different.
This calculator applies the same IRD tax logic used by New Zealand's PAYE system to both scenarios simultaneously. It calculates your true take-home under each option, identifies the exact contractor rate you need to match your employee package (including all benefits), and shows you the full breakdown of what changes when you move from employment to contracting.
In New Zealand, employees pay one ACC levy: the earners' levy at 1.75% of earnings, capped at $156,641 per year (maximum $2,741 in 2026/27). This is deducted from their pay along with PAYE. Employers separately pay an ACC work levy, but employees never see this cost in their payslip.
As a self-employed contractor, you pay both levies yourself. The earners' levy (1.75%) is the same as an employee. But you also pay the work levy that would normally be billed to your employer. Work levy rates vary significantly by industry, from around 0.39% for IT and technology professionals up to 3% or more for trades and construction. ACC invoices self-employed people annually based on their previous year's earnings. You can check your exact levy rate on the ACC website under your industry classification code.
The practical effect is that a contractor in a typical office or IT role pays approximately 0.5% more in ACC than an equivalent employee, on top of all their other costs. This is not enormous, but it is a real cost that rarely features in the mental arithmetic people do when considering contracting.
For employed New Zealanders, the employer KiwiSaver contribution is one of the most valuable parts of the employment package. From 1 April 2026, the minimum employer contribution is 3.5% of your gross salary. On a $100,000 salary, that is $3,500 per year going into your retirement fund from your employer, in addition to your own contributions. Over 20 years at 5% growth, $3,500 per year compounds to approximately $115,000.
As a contractor, you receive no employer KiwiSaver contribution. You can still contribute to KiwiSaver voluntarily, but every dollar in the fund comes solely from you. The government member tax credit (up to $521 per year for contributions of $1,042 or more) is still available, but there is no employer top-up. To replicate the full value of a 3.5% employer contribution on a $100,000 salary, a contractor would need to earn an additional $3,500 per year and save it themselves, after paying income tax on it first.
New Zealand employees are entitled to at least four weeks (20 days) of paid annual leave per year under the Holidays Act 2003. They also receive 10 days of paid sick leave and 11 public holidays. That is 41 working days per year where they are paid but not working.
Contractors receive none of these. Every day a contractor is not billing, they are not earning. A contractor on $130,000 per year working 48 weeks earns approximately $2,708 per week. Take four weeks unpaid leave and that is $10,833 in lost income. Take any sick days and the impact is immediate. This is why many experienced NZ contractors build a buffer of 6 to 8 weeks of gap time into their annual planning, and why the effective hourly rate comparison between contract and salary is more useful than the annual income comparison.
Contractors operating as sole traders or through a limited company can deduct genuine business expenses from their taxable income. Common deductible expenses include accounting and bookkeeping fees (typically $1,500 to $3,000 per year), professional indemnity insurance, work equipment, home office costs (a proportion of rent or mortgage, power, and internet), professional memberships, and continuing education. These deductions reduce your taxable income, which reduces your income tax, making them more valuable the higher your marginal rate.
If your annual contract income exceeds $60,000, you must register for GST in New Zealand and charge clients 15% on top of your rate. For business-to-business contracting, this is largely cost-neutral because your clients can claim the GST back. For business-to-consumer services, your effective price to clients increases by 15%, which can affect your competitiveness. GST registration also requires filing returns (typically every two months) and adds bookkeeping complexity, which is part of why accounting costs for contractors are higher than for employees.
The generally accepted rule of thumb in New Zealand is that a contractor should charge between 25% and 40% more than an equivalent employee salary to end up in the same financial position. The exact figure depends on your industry, your ACC work levy rate, how generous the employee's KiwiSaver and leave package is, and how much time you expect to be unbillable each year.
As a rough guide for a professional services contractor replacing a $100,000 salary with standard benefits: you need to earn approximately $135,000 to $140,000 in contract income to end up with equivalent take-home cash plus equivalent retirement savings. This assumes 48 billable weeks, 3.5% employer KiwiSaver not received, standard 20 days leave, $5,000 in business expenses, and an ACC work levy of around 0.47%.
The break-even rate shown by this calculator is calculated precisely for your specific inputs, rather than using a rule of thumb.
This calculator models contracting as a sole trader, where all income is personal income taxed at PAYE rates. Many New Zealand contractors eventually set up a limited liability company (LLC) to hold their contracting income. This allows them to leave profit in the company at the 28% company tax rate rather than paying personal rates of up to 39%, and to use the salary-vs-dividend structure to manage their personal tax position. However, running a limited company adds complexity and compliance costs and is generally not worthwhile at lower income levels.
For guidance on the salary vs dividend split for a contracting company, see the Salary vs Dividend Calculator on this site.
Yes. Employees pay only the earners' levy (1.75%, capped at $156,641). Their employer separately pays an ACC work levy, but employees do not see this cost. Contractors pay both the earners' levy and the work levy themselves. Depending on your industry, the work levy for a contractor can add 0.4% to 3% or more to your effective ACC burden compared to what an employee sees.
No. Voluntary KiwiSaver membership is available to all New Zealand residents, but there is no automatic enrolment for self-employed people and no employer contributions. Contractors can contribute voluntarily at any rate and still receive the government member tax credit (up to $521 per year). However, without an employer match, their KiwiSaver grows purely from their own contributions.
If your annual turnover from your contracting work exceeds $60,000, you must register for GST and charge 15% on your invoices. Below this threshold, GST registration is voluntary. For B2B work, GST is largely neutral as the client can claim it back. The threshold is based on 12-month turnover, not income, and the clock can reset if you change business activity.
Contractors can deduct any expense that is incurred wholly or mainly for earning their income. Common deductible expenses include accountant and bookkeeper fees, professional indemnity and public liability insurance, work equipment and tools, a portion of home office costs (based on floor area or actual use), professional memberships and subscriptions, work-related training, and vehicle costs for work travel (not commuting). Personal expenses are not deductible. When in doubt, consult a registered tax agent.
Unlike employees who have PAYE deducted by their employer, contractors pay tax themselves either through provisional tax (three payments per year based on estimated income) or through the AIM (Accounting Income Method) which calculates provisional tax based on actual income each period. Contractors who receive schedular payments may have withholding tax (WT) deducted at source by the client. At year end, all income is declared in an individual tax return (IR3). Many contractors work with an accountant to manage their provisional tax obligations.
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