Being a Contractor – What It Means and Some Common Pitfalls

What does being a contractor mean?

  • You are self-employed
  • You can choose what work to do, when and depending on the sector, where you do it
  • You are responsible for paying your own taxes/ACC/Kiwisaver
  • There is no sick or holiday pay
  • You do not get paid for public holidays that you do not work

Common Mistakes

  • No putting aside enough for tax and ACC – put money aside every time you get paid
  • Not getting advice upfront – get the experts involved early.  Your accountant can help you decide the best structure to save you tax.
  • Paying Tax and GST late – this costs you money on penalties and interest
  • Not sending your invoices on time, if you don’t send it, you don’t get paid!
  • Having your hourly rate set too low – this is easier for you have been a paid employee in the sector previously and then add a markup to cover annual leave/sick leave/public holidays/ACC/expenses.  A good rule of thumb would be your old hourly rate + 20%
  • Not making time for record-keeping and administration

Other things to remember:

  • Even if you are a contractor, you should have a contract of service with your client to set out the terms of the contract.
  • You are expected to have your own equipment/tools that are needed for your job
  • Getting loans and mortgages – this can be harder than when you are an employee, you will need to be able to demonstrate to the bank your work history and a forecast of your projected income for the next 12 months.  The newer you are as a contractor, the less history you have 
  • Insurance and/or ACC – You need to consider what happens if you can not work due to either an accident or sickness.   


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