Why your contractor rate is higher than an employee hourly wage
An employee’s salary is paid across annual leave, public holidays, sick leave, meetings, training, and quieter periods. A contractor normally invoices only productive client hours and must fund the rest. Contractors also pay their own business expenses, arrange retirement saving, and carry more income risk.
Dividing a salary by 2,080 hours ignores all of that. This calculator first estimates realistic billable hours, then works backwards from the income you want to keep.
How the calculation works
- Available working hours start with weekly hours and remove weeks off, public holidays, and sick or contingency days.
- The billable percentage removes administration, quoting, marketing, training, and gaps between jobs.
- For a take-home goal, the calculator iteratively finds the taxable profit needed after progressive NZ income tax, estimated ACC, and any student-loan obligation.
- Business expenses are added to determine required revenue.
- The break-even rate divides that revenue by annual billable hours. Your selected safety or profit margin creates the suggested rate.
- GST is added only to the customer price. GST collected is not treated as personal income.
Employee salary to contractor rate — and back again
In salary-matching mode, the calculator treats the salary and employer KiwiSaver as the employment package you want the contractor arrangement to replace. It then allows for business expenses and fewer billable hours. The result is not simply salary divided by working hours.
The reverse comparison estimates the employee salary represented by your suggested contractor revenue after expenses. It is a planning comparison, not a claim that the two arrangements have identical legal rights, security, insurance, or career benefits.
Two stories: how each calculator mode works
These examples use the calculator's default planning assumptions: 40 working hours a week, 4 weeks off, 12 public holidays, 10 contingency days, 70% billable time, $12,000 of annual expenses, a 15% safety margin, and no student loan or retirement contribution.
Scenario 1: Maia has an income goal
Maia is a freelance designer. She wants $70,000 of personal take-home income after estimated income tax and ACC.
- The calculator works backwards and finds that Maia needs about $92,632 of taxable profit.
- It adds her $12,000 business expenses, producing break-even revenue of $104,632.
- Across 1,221 billable hours, her break-even rate is $85.71 an hour.
- The 15% safety margin lifts the suggested rate to $98.56 an hour.
Suggested charge-out rate$98.56/hour excl. GST
If Maia is GST-registered, the customer sees $113.35 an hour including GST. The GST is collected separately and is not included in Maia's take-home income.
Scenario 2: Wiremu is comparing a salary
Wiremu is considering leaving a $100,000 employee role for consulting. His employer would also contribute 3.5% to KiwiSaver.
- The calculator starts with the $100,000 salary and adds the $3,500 employer contribution.
- It then adds $12,000 of contractor expenses, producing break-even revenue of $115,500.
- Across 1,221 billable hours, his break-even contractor rate is $94.61 an hour.
- The 15% safety margin lifts the suggested rate to $108.80 an hour.
Suggested charge-out rate$108.80/hour excl. GST
With GST added, the customer price is $125.12 an hour. The comparison is financial only—employment rights, security, insurance, and commercial risk still differ.
Example results are based on the stated defaults and 2026–27 planning settings. Changing any calculator input will change the result.
Costs people often forget
Time
- Quoting and proposals
- Bookkeeping and invoicing
- Marketing and networking
- Training and professional development
Business costs
- Software and accounting
- Insurance and licences
- Equipment and depreciation
- Vehicle, travel, and workspace
Personal protection
- Unpaid holidays
- Sick and contingency days
- Retirement saving
- Late payment and quiet periods
Hourly rate, day rate, or fixed price?
An hourly rate suits work where scope or duration is uncertain. A day rate is convenient for consulting engagements, but you should define how many hours a day includes. Fixed pricing can reward efficiency, provided the scope, revisions, dependencies, and change process are clear.
The suggested rate is a financial floor and buffer based on your entries. Your final market price may be higher or lower depending on specialist skill, demand, urgency, value delivered, location, risk, and negotiating position.
GST and quoting clients
If you are GST-registered, quote clearly whether a price is plus GST or GST-inclusive. The calculator shows both. GST is normally collected on behalf of Inland Revenue and should not be counted as revenue available for personal spending. Check your registration position if taxable turnover reaches or is expected to reach the current $60,000 threshold.
Frequently asked questions
What percentage of my working time should be billable?
There is no universal percentage. Established contractors with long engagements may invoice most available hours; freelancers handling sales, quoting, and many small clients may invoice much less. Use your records where possible and choose a conservative figure when starting.
Should I add GST to my hourly rate?
If registered, decide on an excluding-GST rate and state that GST will be added. This calculator keeps the suggested rate excluding GST and displays the customer’s GST-inclusive price separately.
Does the calculator include provisional tax?
It estimates the annual income-tax amount that must ultimately be funded. It does not schedule provisional-tax instalments, terminal tax, penalties, or use-of-money interest.
Is ACC exact?
No. The editable ACC percentage is a planning proxy. Actual self-employed levies depend on your liable earnings, industry classification, levy rates, and cover choices.
Does the equivalent salary make employment and contracting equal?
No. It is a financial comparison only. Employment rights, job security, insurance, liability, equipment, control, and the legal employee-or-contractor test still matter.
How often should I review my rate?
Review it at least annually and whenever expenses, tax settings, available hours, demand, experience, or scope changes. Compare forecast billable hours with what you actually invoiced.
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Assumptions and disclaimer
This is a general planning estimate, not tax, accounting, employment, or pricing advice. It uses 2026–27 individual income-tax bands, a $24,128 student-loan threshold and 12% repayment rate, an editable ACC proxy, and simplified annual calculations. It does not model IETC, Working for Families, schedular withholding, tax credits, losses, company structures, tax pooling, exact ACC classification, or every student-loan adjustment. Confirm important decisions with Inland Revenue, ACC, or a qualified adviser.