Can I Afford to Hire?

💰 What an employee actually costs

The wage is the number owners plan around and it is not the cost. Here is what sits on top of it in New Zealand.

Employer KiwiSaver contributions

You must contribute to KiwiSaver for members who are contributing, at the compulsory employer contribution rate. Employer superannuation contribution tax, ESCT, is then deducted from that contribution before it reaches the fund. This is the point most people get wrong: ESCT is taken out of your contribution rather than charged on top of it, so your cost is the contribution rate applied to gross pay, and the employee's fund receives that amount less ESCT. The ESCT rate itself depends on the employee's total remuneration band.

ACC levies

The ACC work levy is charged on your payroll at a rate set by your classification unit, which reflects the work actually performed. Rates vary widely between office-based and physical work, so a builder and a bookkeeper are not comparable. Check your classification is correct, because a wrong one quietly costs money every year.

Leave, which is inside a salary and on top of a wage

Employees are entitled to annual holidays, public holidays, sick leave and bereavement leave. For a salaried person, taking leave does not add cash cost, because they are paid the same either way. What it does is reduce the productive days you receive for that salary, which is why the revenue calculation later uses available working days rather than 52 weeks. For hourly staff and contractors paid for time worked, leave is a genuine additional cost.

The costs nobody budgets

Tools, a laptop or a phone, software licences, insurance uplift, desk or workshop space, protective equipment and training. Individually small, collectively often ten percent of the wage in the first year.

🔢 What the role has to carry

Once you have the true cost, the affordability question becomes arithmetic: how much revenue must the role generate or free up, and how long before it repays the investment.

⚖️ Two things that are not your choice, and what to do if the answer is no

Employee or contractor is determined by the arrangement, not by preference

Owners frequently plan to engage a contractor to avoid employment obligations. That works only where the relationship genuinely is a contracting one, and whether it is depends on the real nature of the arrangement rather than what the agreement calls it or what both parties would prefer.

The courts and the Employment Relations Authority look at the substance: how much control you exercise over how and when the work is done, whether the person is genuinely in business on their own account with other clients and their own equipment, and whether they are integrated into your business like a staff member. Labelling someone a contractor while directing their hours, supplying their tools and requiring exclusivity does not make them one.

A trial period does less than people think

Trial period provisions can remove an employee's ability to raise a personal grievance for unjustified dismissal, but only where the agreement is correctly drafted and signed before the person starts work. Signing on the first day, after starting, invalidates it entirely.

Even a valid trial does not remove your obligation to give the contracted notice, and it does not block claims for discrimination, harassment or unpaid wages. It also does nothing about the money: by the time you conclude the hire is not working, you have typically spent the recruitment cost, the training investment and several months of salary. Our 90-day trials guide covers what it does and does not protect, and our cost of a bad hire calculator prices the outcome.

If the answer is not yet

Not yet is a legitimate answer and there are four things to do with it.

Raise prices instead. If you are at capacity, demand exceeds supply, which is precisely the condition under which a price rise is defensible. It improves margin without adding cost or risk. Our minimum price calculator establishes the floor.

Buy hours without buying a person. A contractor for genuinely project-based work, a virtual assistant for administration, or a bookkeeper for the accounts. Reversible, and it tests whether the work really needs a permanent role.

Remove the low-value work first. Most owners can free five to ten hours a week by cutting or automating tasks nobody values, which is often the equivalent of a part-time hire at no cost.

Build the buffer, then hire. If the numbers work but the cash does not, the constraint is timing rather than viability. Set a buffer target, reach it, and hire from a position where a slow first quarter is survivable.

Related guides and tools

• How much should I pay myself guide, for settling your own pay before adding someone else's.
• Should I delegate or do it myself guide, for deciding which work to hand over.
• 90-day trials guide, for what a trial period actually does.
• Tools: true cost of employee calculator, contractor versus employee calculator, payroll cost calculator, new hire ramp-up cost calculator, and business cash buffer calculator.