Contractor rate calculator
Someone offers you contract work at $60 an hour. You're on $80,000, which looks like about $38 an hour, so $60 sounds like a substantial pay rise.
It isn't. On those numbers you'd need around $56 an hour just to stand still, and that's before you've earned a cent more for the risk you've taken on.
The gap catches people out because the things a salary quietly includes don't show up in the hourly figure. This calculator counts them.
Why the naive number is wrong
Divide your salary by the hours in a year and you get a number that's wrong in two separate directions at once.
You're paid for days you don't work. Four weeks of annual leave, up to twelve public holidays, ten days of sick leave. That's roughly 42 days a year an employer pays you for while you're not there. As a contractor those days earn nothing, so the same money has to come out of fewer days.
Your employer pays for things you'll now pay for yourself. The KiwiSaver contribution. The ACC work levy and the Working Safer levy. Accountancy, insurance, the software, the time spent quoting and invoicing.
Neither of those appears in "salary divided by hours". Together they're usually worth 40% to 50% on top.
What it works out
Enter your salary, your working pattern and what you'd be giving up. It gives you the hourly rate and day rate you'd need to charge to be in the same position and shows how it builds up, line by line, so you can see which part is doing the damage.
It also runs in reverse. If you've been offered a rate, or you're already contracting and wondering what salary would match, enter the rate and it works back the other way.
The parts people miss
The employer's KiwiSaver contribution isn't worth what it says. It's taxed at ESCT before it reaches your account, so a 3.5% employer contribution on $80,000 puts $1,960 into your KiwiSaver, not $2,800. The calculator applies the right ESCT band automatically.
ACC is two levies, not one. The earner's levy you already pay through PAYE, so it's not a new cost and it's deliberately left out. But the work levy and the Working Safer levy are paid by your employer, and as a contractor they become yours. The work levy varies enormously by occupation, from $0.20 per $100 of earnings for office work to $4.00 for forestry. Pick your band, or enter your exact rate from your ACC invoice.
Sick leave doesn't scale. Annual leave and public holidays shrink if you work part-time. Sick leave is ten days regardless of whether you work five days a week or two. The calculator handles that correctly, which most rate-of-thumb calculations don't.
The risk premium is a judgement, not a calculation. No notice period, no redundancy pay, no guarantee the work continues past Friday. The default is 10%. Whether that's enough is your call, and it's the input worth thinking hardest about.
Student loans
If you have one, contracting means repaying more. Your taxable profit is higher than the salary it replaced, because it now carries the KiwiSaver contribution and the risk premium on top, and student loan repayments are 12% of everything above the threshold.
That sounds like a cost. It mostly isn't. For a New Zealand-based borrower the loan is interest-free, so every extra dollar repaid reduces the debt by exactly a dollar. What changes is where your money sits, not how much of it you have.
So the calculator gives you two rates.
The headline rate leaves your net worth unchanged. You'd have less cash during the year and a smaller loan at the end of it.
The cashflow rate charges enough to put the cash back in your hand. Because you're still making the larger repayment, you end the year with the same spending money as an employee and a smaller loan, so you're actually ahead.
Which one you want depends on whether you'd rather have the money now or the loan gone sooner.
Worth knowing that an interest-free student loan is the cheapest debt you will ever have, and a dollar put into clearing it early is a dollar not invested somewhere it could grow. Paying it off faster isn't automatically the better outcome.
What it doesn't include
GST. If you're registered you charge it on top and pass it to IRD. It isn't income and it doesn't change the comparison.
Income tax. It applies to an employee and a contractor alike, so it cancels out.
The exact public holiday calendar. Whether a public holiday is yours depends on which weekdays you work, not how many, and so many New Zealand public holidays fall on Mondays that someone working Monday, Wednesday and Friday catches almost all of them while someone working Tuesday and Thursday catches almost none. The spreadsheet uses a pro-rata approximation. If your days are unusual, adjust the public holidays figure by hand.
Your exact ACC Classification Unit. There are hundreds of them and ACC sets a specific rate for each. The bands in the calculator are indicative. Your ACC invoice or MyACC has your real one, and there's a cell for it.
Being an employee isn't only about the money
The calculator prices what can be priced. Some of what you'd be giving up can't be.
Notice periods and redundancy. Parental leave. Bereavement leave. The ability to be genuinely unwell without it costing you. Someone else worrying about whether there's work next month. Professional development, equipment, a team.
And some of what you'd gain doesn't show up either. Control over your time, the ability to turn down work, several clients rather than one employer, and in most cases a higher ceiling if it goes well.
The number this calculator gives you is the floor, not the answer.
Thinking about making the jump?
If you'd like to talk through whether it stacks up - the rate, the tax structure, what to put aside, and whether the timing works with everything else you've got going on, get in touch for a free 30 minute chat. Independent, and I don't sell anything.
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