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
- 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.