Free Contractor vs Employee Calculator for New Zealanders
Contractors trade employer benefits (KiwiSaver match, sick leave, holidays) for a higher gross rate. This estimator turns a daily contractor rate into an annual net figure and compares it against an equivalent employee salary.
Your comparison
Based on $700/day for 220 days vs an employee on $120,000.
About our Contractor vs Employee Calculator
The headline "contractor pays more" is usually true. The hidden question is whether the day-rate premium covers the employer-side benefits the contractor gives up. The conventional NZ benchmark sits at around 25-40% more annual gross for a contractor versus an employee at the same role; below that, the contractor is taking a real pay cut once the missing benefits are valued in.
The calculator runs the maths both ways. Contractor side: daily rate × billable days, less PAYE and ACC. Employee side: salary, less PAYE, ACC, and KiwiSaver. The difference is the headline gap. The hidden costs of contracting (no employer KiwiSaver match, no paid leave, no paid sick days, no employment security, income volatility) come out of that gap.
Move the day-rate slider to find the rate at which the gap closes. For a $120,000 employee equivalent, the break-even contractor day rate sits around $560-$580 at 220 billable days, after factoring in benefits. Anything below that and the contractor is taking less for more risk.
How to use it
Enter the contractor day rate (GST-exclusive) and the realistic billable days per year. 220 is a sensible default for full-time consultants; 200 is more realistic for project-based work with gaps between contracts.
Enter the employee-equivalent salary you would expect for the same role. Most clients can quote both; if not, recruiter benchmarks are the next-best source.
The result panel returns net annual income for each option, the gross-to-net split, and the headline gap. The caveats below cover the benefit-side adjustments that close part of the gap.
Why use it
The contractor-vs-employee decision is usually framed as "the contract pays more" without quantifying the gap or the hidden costs. The calculator gives a quantitative starting point, which can then be adjusted for personal circumstances (KiwiSaver tolerance, leave preferences, risk appetite, career stage).
For people considering switching, the calculator also makes the GST registration threshold visible. Contractor turnover above $60,000/year (which most full-time contractors clear) requires GST registration, which adds bi-monthly compliance overhead and means the headline day rate is GST-exclusive in client conversations.
For people considering hiring contractors instead of employees, the same calculator works in reverse. The "contractor saves the employer money" argument depends on the day rate; if the day rate is high enough to cover the employer’s lost KiwiSaver match, ACC work levy, and other on-costs, the saving evaporates and the choice becomes one of flexibility rather than cost.
The maths behind it
Contractor net = (Daily rate × Billable days) − PAYE − ACC − Business expenses | Employee net = Salary − PAYE − ACC − KiwiSaver Contractor income is calculated as daily rate times billable days (typically 200-230 per year after holidays, sick days, and unbillable admin time). Income tax applies via standard PAYE brackets in either case. Contractors pay the same ACC earner levy as employees but lose the employer-side benefits (employer KiwiSaver match, paid sick leave, paid holidays, paid public holidays). The calculator highlights the gross-to-net gap and compares against an employee salary on equivalent terms.
Worked example
Felicity, IT consultant in Westport, choosing between a $700/day contract and a $120,000 salaried role.
Felicity has been offered both options at the same client. The contract pays $700/day with the expectation of 220 billable days a year (the rest going to holidays, sick days, and admin). The employee role pays $120,000 plus a 3.5% KiwiSaver match.
Contractor gross: $700 × 220 = $154,000. Income tax on $154,000: $34,381. ACC: $156,641 × 1.75% capped at $2,741. Net contractor: $116,878 a year. (No KiwiSaver employer match, no employer-paid sick leave or annual leave.)
Employee gross: $120,000. Income tax: $24,481. ACC: $2,100. KiwiSaver employee at 3.5%: $4,200. Take-home: $89,219. Plus $4,200 employer KiwiSaver match (deferred), 4 weeks paid annual leave (worth around $9,600), and 10 days paid sick leave per year.
Contractor wins by $27,000 in headline annual net. Once Felicity factors in the missing KiwiSaver match ($4,200), four weeks of unpaid leave ($14,000 equivalent at her contract rate), and the irregular nature of contract income, the gap narrows to around $9,000-$13,000.
Things to keep in mind
- Billable days are usually 210-230, not 260. A working year in NZ has 260 weekdays, but contractors lose 4 weeks (20 days) to holidays, 10 days to public holidays and sick days, and 5-15 days to admin and inter-contract gaps. 200-230 billable days is realistic; 260 is unrealistic.
- GST registration above $60,000 turnover. Contractor turnover above $60,000/year requires GST registration. Contractors charge 15% GST on top of the day rate; the GST is paid to IRD via bi-monthly returns. Some clients prefer to pay an inclusive rate, so the headline "day rate" can be GST-inclusive or GST-exclusive depending on the contract.
- No employer KiwiSaver match. Contractors lose the 3.5% employer match (rising to 4% from 1 April 2028). On a $154,000 contractor income, that is $5,390/year of foregone retirement contributions, which compounds significantly over a working career.
- Income volatility. Contractors face period-of-no-income gaps between contracts. A 4-week gap on a $700/day rate costs $14,000 of foregone income. Most NZ contractors maintain a buffer fund of 3-6 months of expenses to bridge gaps.
- <span class="term" tabindex="0" aria-describedby="term-tip-provisional-tax">Provisional tax<span class="term__tip" role="tooltip" id="term-tip-provisional-tax"><strong>Provisional tax</strong><span class="term__tip-def">Tax paid in instalments through the year by self-employed and company taxpayers.</span><a href="/glossary/#provisional-tax" class="term__tip-link">View in glossary →</a></span></span> for sole traders. Self-employed contractors (not on schedular payments) pay tax in three provisional-tax instalments through the year, then square up at year-end. The tax outcome over the year is the same as PAYE; the cash-flow timing differs.
NZ-specific notes
FAQs
How big should the day-rate premium be over a salary?
Conventionally, a contractor day rate should produce 25-40% more annual gross than an equivalent salaried role to compensate for the missing benefits (paid leave, sick days, KiwiSaver match, employment security). For a $120,000 salary equivalent, that translates to around $700-$770/day at 220 billable days. Below that, the contractor is taking a real-terms pay cut once benefits are valued in.
How do contractors pay tax?
Two main routes. (1) Schedular payments: the client deducts WT at the contractor’s chosen rate (10.5% to 39%). (2) Sole-trader provisional tax: the contractor invoices gross and pays tax in three provisional-tax instalments through the year. Some contractors operate through a company; the company pays company income tax at a flat 28%, then the contractor draws income via salary or dividends.
Do contractors pay GST?
If turnover is at least $60,000 a year (or expected to be in the next 12 months), GST registration is compulsory. Contractors then charge 15% GST on top of the day rate and remit it to IRD via bi-monthly returns, reduced by any GST on business expenses claimed back as input credits.
Can I get sick days as a contractor?
No, not from the client. A contract for services has no sick-leave entitlement under NZ employment law. Some contractors price extra days into their rate (e.g., 5 days at $700 = $3,500 of "implicit sick leave"); others treat it as an income gap to be self-funded from the buffer.
What happens to my KiwiSaver as a contractor?
Voluntary contributions only. Contractors can keep paying into their existing KiwiSaver account, but there is no employer match. The government still pays its $260.72/year contribution if you put in at least $1,042.86 of your own. The lost employer match is the biggest single hidden cost of moving from employee to contractor.
How is my income protected if a client doesn’t pay?
Contractors carry the full credit risk of unpaid invoices, with no statutory backstop equivalent to employee preference in liquidation. Income protection insurance, business continuity insurance, and a strong contract are the standard defences.
When should I switch from sole trader to a company?
Common rules of thumb sit at $80,000-$120,000 of net income, where the 28% company tax rate becomes meaningfully lower than the contractor’s 33%-39% personal rate (with leftovers reinvested rather than drawn). Set-up and ongoing costs ($300-$700/year accountant fees) need to be weighed against the tax saving. Get tailored advice from a chartered accountant before incorporating.
References & sources
- Inland Revenue, "Schedular payments". ird.govt.nz
- Employment NZ, "Contractor versus employee". employment.govt.nz
- Inland Revenue, "Registering for GST". ird.govt.nz
- ACC, "Understanding levies if you work or own a business". acc.co.nz