There are many benefits to being a contractor but there are also a raft of responsibilities and hidden costs involved. We've collated some helpful tips and information from to ensure you don't get caught out.

What to charge?

Your charge-out rate must cover the costs an employer would pay for if you had a salaried job. A good method is to take the rate you would earn from a similar salaried job and add at least 20%, eg:

  • $50 per hour salaried rate

  • Plus 20%

  • = $60 per hour contract rate

Use the MBIE charge-out rate calculator below to work out a suitable hourly rate. When it asks you to enter a salary, put in your projected annual income instead.

Finding out what the market rate is, or what similar contractors are getting paid, can also help you when negotiating your rate.

Record your hours

If you're contracting though an agency, you'll be expected to fill in timesheets that break down the hours you work. These will be used to bill the client.

Even if you don't have to do timesheets, it can be a useful discipline. Write down your hours as you go instead of trying to remember at the end of the day or week. Better still, use a smartphone app - there are several on the market and many are free.

You'll also need to decide how you'll charge for your time - eg by the hour, half day, or full day - and put it in your contract.

Keep the work lined up

To avoid unplanned gaps in work, keep looking ahead for the next contract. This will involve actively promoting yourself, reaching out to your networks and keeping your finger on the industry's pulse:

  • Use your networks: Many contracts are found by word of mouth. The more you put yourself out there, the more contracting work you'll hear about. Approach:

    • people you've worked with
    • friends and family
    • relevant professional associations
    • contacts on professional networking sites, eg LinkedIn
    Let people know you're looking for work, what you're looking for and when, and your skills. Building your networks takes time.

  • Build a good reputation: In contracting, your reputation is everything. Do a good job and your next contract will be much easier to find. If you don't have the right skills to do a contract, be honest - no matter how much you want the work. People will judge you on the work you do and your approach, so remember to always be professional.

  • Make time to look for your next contract: Plan time to network and look for contracts. Meet people for coffees, speak to industry contacts and keep an eye on industry news and jobs sites.

  • Demonstrate you understand the client: People often hire contractors to fill a gap, solve a problem or tackle a job that urgently needs doing. Show clients you can quickly fit in, get the job done and have the skills to address whatever it is they need. This will help build your reputation.

  • Consider the time of year: If you're deciding between two contracts, pay attention to when each one ends. For example, it can be hard to get new contracts between December and February, when organisations wind down for Christmas and summer. If you contract to government agencies, there can be lean pickings in the run-up to an election.

Budgeting for the (un)expected

Many contractors overestimate what they can earn in a year. Make sure your contracting rate covers things an employer would normally pay for, eg holidays and time off sick. Here's how to budget for the ebbs and flows - and the expenses - that come when you work for yourself:

  • Broken income: If you're contracting, you may have unplanned gaps between the end of one contract and the start of another. Ideally put aside some income in case you don't have continuous work.

  • Sick days: It's a good idea to factor in not being able to work five days a year when you're too sick to work. Include this in your hourly rate calculation.

  • Public holidays: When you're a contractor you may not be able to - or want to - work on public holidays. In New Zealand we have 10 national holidays, eg Easter and Labour Day, and one holiday per province, eg Hawke's Bay anniversary day. Budget for these as well.

  • Annual leave: Some contractors budget to use gaps between contracts to take a holiday, but if you don't save a buffer you may find you can't relax or go away between jobs.

  • Expenses: You may need to buy or replace equipment like a computer, tools or safety gear. You can claim these back when you do your taxes.

  • Insurance: Ask yourself what could go wrong at work, and think about types of insurance that might cover you for these risks. You might also want to protect your assets, vehicle or buildings against loss or damage. Public liability insurance is important as it covers you if an organisation sues you for damaging their property or reputation.

  • KiwiSaver: It's a good idea to plan for your retirement. As a contractor you have to set up and pay into KiwiSaver yourself. If you pay in at least $20 a week, or $1,043 a year, you'll get a $521 top-up from the government.
  • Taxes and ACC: Put away enough money regularly, eg when your invoices are paid, to pay your income tax, ACC and - if you're registered - GST. Keep the money in a separate account so you don't spend it by mistake. Think about opening a high interest account for this purpose.

Common mistakes

  • Not holding on to all the records you need to keep. Check out Inland Revenue's handy record keeping checklist to keep yourself compliant. TIP: Keep hard-copy records attached to your GST return for that period. That way if Inland Revenue asks to see them, you'll have all the information at hand.

  • Not having good systems or staying on top of things.

  • Not keeping your records for long enough. You must keep everything for at least seven years.

  • Leaving it too late to pay your tax. Be aware of what penalties may be imposed.

  • Not getting advice up front. Getting the right advice at the right time is crucial for contractors. Experts can help you to set yourself up so you don't keep making the same mistakes, eg saving the right amount for provisional tax.

The Ministry of Business, Innovation and Employment has a range of business information and resources, like templates, checklists and quizzes, on their website,, all aimed at helping small businesses succeed.

If you are a contractor, or thinking about contracting, please feel free to drop us a line - we can assist you with:

  • Choosing the best business structure to trade under

  • Applying for financing

  • GST registration and filing of GST returns

  • Making the right expense claims

  • Minimising your tax bills

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