Your Guide to Contracting

Getting paid, dealing with the tax, managing your obligations, and building a sustainable career.

Being an independent contractor gives you the freedom to work the jobs you enjoy, travel, set your hours around family commitments, take on more or less work, spread your risk, and get paid more for your time. It’s not surprising that thousands of New Zealanders choose to work as independent contractors.

If you’re new to contracting or if you want to set yourself up right, there are a few things you need to know to ensure you stay on the right side of the Tax Man and protect yourself from liability.

Make sure you qualify as a contractor…

What does being an independent contractor actually mean?

If you’re an independent contractor in New Zealand, then you:

  • Are self-employed.
  • Can make choices around the work you do.
  • Are responsible for paying your own taxes.

There are lots of advantages to being a contractor – freedom, possibly being paid more, flexibility, etc. However, there are some aspects of contracting that you should be aware of before you dive in:

  • You won’t get paid for gaps between contracts. You will have to find your own work or talk to Work and Income New Zealand about other options.
  • You may find you move from job to job quickly and have to constantly adapt to a new environment and new people.
  • You may get paid more than a salaried employee, but there are hidden costs you should be aware of. You have to pay your own taxes, insurance, ACC levies, KiwiSaver, and put money aside for holiday and sick leave.
  • You are not protected by the Employment Relations Act, and need to have your own ‘Contract for Services’ with the company who hires you to protect your rights and outline your responsibilities.

Understand your contract terms

Your independent contractor agreement

As a contractor, you’re not protected by employment law and aren’t eligible for employee benefits like holiday pay or KiwiSaver contributions. In order to protect your rights and be clear about your responsibilities, you should make sure you have a written contract between yourself and the principal (the company/individual who’s contracting you). This is called an independent contractor agreement. Make sure your contract outlines:

  • The work you’ll do, how much you’ll do, and how you’ll be paid for it.
  • How long the contract will last – is it open ended, or does it expire on a certain date?
  • The expenses and allowances you’re allowed to claim from the client.
  • How disputes will be settled. (As a contractor, you can’t raise a personal grievance, so you’ll need an alternative disputes process).
  • Your responsibilities around confidentiality, competing businesses, and client information. (For example, many contracts forbid you working for a competitor or contacting clients of the company after the contract period ends).
  • A process for terminating the contract.
  • If you’re required to take out any kind of insurance and what liabilities you assume.
  • If any restrictions apply, such as the ability to subcontract out your work.
  • Who will own any intellectual property developed as part of the contract.

For more information about independent contractor agreements, see the Business.govt website.

Your contracting questions, answered.

Here are the most common questions we receive about contacting.

Do I get paid for time off and sick leave?

You won’t get paid unless you’re working. You’ll need to budget throughout the year to make sure you have enough money set aside to cover time off and sick leave.

What about public holidays?

As a contractor, you don’t get paid for public holidays unless you work on those days. Many salaried employees are paid extra to work on public holidays, but you wouldn’t usually be entitled to this.

How do I get paid?

Instead of getting a regular paycheck automatically deposited into your account, you’ll need to invoice your clients for the work you do and any expenses you incurred. You won’t get paid until you send out the invoice, so it’s important to keep accurate records and stay on top of sending your invoices.

If you’re terrible with the money side of things, consider using The Detail to manage your finances, send out your invoices, pay your tax, and sort all your business administration. Find out more.

Do I need an accountant to do my return?

There’s no legal requirement for you to use an accountant, and the IRD has useful online guides to help you complete your own tax return.

However, a simple mistake could cost you hundreds or thousands of dollars at tax time. If you don’t have a head for numbers, consider paying an accountant or looking at The Detail’s support services – an inexpensive option to manage your business administration, invoicing, tax, GST, ACC, KiwiSaver, and insurance. Find out more.

What ACC do I need to pay?

ACC levies cover injuries that happen at work. Salaried employees have their levies automatically deducted along with their PAYE. As a contractor you are a business owner (your business being yourself) and as such, you have to pay these levies.

When you file your tax return with the IRD, you choose a Business Industry Classification for yourself. Using this BIC code, ACC determines the risk of injury in your industry and adjusts your levy accordingly. For example, a forestry worker is more at risk of injury than a freelance writer, so their levy is higher.

For more information, see the ACC website.

What Insurances do I need?

You put yourself at risk if you don’t have the correct insurance in place. In some industries you’re required to have certain types of insurance before you can land a contract. Professional Indemnity and Public Liability insurance is usually a prerequisite contractual requirement, driven by the client.

Here are some of the other common types of insurance contractors take out:

  • Liability insurance. This insurance covers you if someone sues you or the company you work for, or if you accidentally break the law, give bad advice, or make a mistake. If you’re an advisor (for example, a consultant or financial advisor) or if you have the potential to damage another person’s property (a plumber or builder) or reputation (freelance journalist) it’s a good idea to look into liability insurance.
  • Income protection. If you don’t get work for several months, income protection pays you a percentage of your typical monthly earnings. This enables you to keep up with your living expenses. Many mortgage providers require income protection insurance.
  • Asset insurance. This protects tools and other assets you use in your business from theft and damage.
  • Commercial vehicle insurance. If you drive a vehicle as part of your contracting, then you’ll need vehicle insurance.

There’s lots of factors to consider when choosing insurance. At the detail we have negotiated a great group rate for professional contractors. You can pay as you earn through our Contractor Support Service. If you want someone else to organise your insurance for you and find the best deal, get in touch with us today.

Do I need to pay GST?

If your gross (before tax) income is higher than $60,000 over twelve months, then you will need to register for and pay GST (Goods and Services Tax). But you can also claim back GST on some of your expenses.

Some income, such as royalties and overseas contracts, are zero-rated, so you won’t pay GST on these. It’s important to understand how GST works and what is and isn’t eligible. Learn more about GST on the IRD website, and talk to the team at The Detail today and let us sort out your GST woes.

What if I’m on a work visa?

If you have a work visa with open working conditions, then you’re allowed to be self-employed. Check the conditions on your visa, as it will outline the types of work you can do.

For more on self-employment and visas, see the Immigration NZ website. For immigration advice, free resources and help with your visa applications we recommend you check out the website of leading immigration law firm NZIL.

Who pays my KiwiSaver if I’m a contractor?

You do. While salaried workers have their KiwiSaver set up to automatically deduct 3%, 4%, or 8% from their salary each pay period, you are responsible for paying your own contributions directly to your KiwiSaver provider. Many contractors use an automatic payment to ensure they remember to pay into their KiwiSaver every month.

As a self-employed person, you’re eligible to receive the $1,000 initial Crown contribution and – provided you contribute a minimum of $1,042.86 per annum, a Member Tax Credit of $521.43 per year.

However, you won’t be eligible for any employee contributions. For more information, see the KiwiSaver website or talk to your provider.

What if I need gear to do my job?

Unless specified in your contact with the company hiring you, you’re responsible for providing your own tools/gear to complete the job. However, any gear purchased for the purpose of doing your job can be deducted as an expense on your tax return. This includes:

(Items under $400 are deducted as expenses. Anything over $400 is considered a capital purchase and has to be depreciated. For more information on what expenses you can claim, see the IRD website.

What expenses can I claim?

The Inland Revenue Department allows you to claim a number of expenses against your income in order to reduce the amount of tax you have to pay. Common expenses include:

  • Home office expenses like a computer, stationery, as well as a portion of your home’s phone, power, internet, rates, mortgage interest, or rent.
  • Tools, such as hammers, nails, power tools, rollers, etc.
  • Legal fees, for example from drawing up contracts, up to $10,000 per year.
  • Magazine subscriptions and newsletters that enable you to keep up with your industry.
  • Mileage if you need to drive to reach sites or client meetings.
  • Workshops, courses, and events for professional development.
  • Contractors and subcontractors, including your accountant, bookkeeper, or editor.

For more information on what expenses you can claim, see the IRD website.

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How we can help

If all this sounds a little bit overwhelming – you’re not alone. We work with contractors across the country who trust us to manage their admin, so they can focus on what they do best.

At The Detail we take care of invoicing your clients, calculating and paying your GST, tax, ACC KiwiSaver and insurance. We are your support team!

We’ve streamlined and simplified the entire process of:

  • signing of the contract with your client,
  • completing timesheets,
  • invoicing clients,
  • calculating and paying tax, GST, ACC, KiwiSaver and insurance.

By the time we pay money into your account, you’re tax compliant and whatever funds you have are yours to spend.

Discover how The Detail can simplify you contracting business today!