Contractor vs Employee Tax Comparison

Income tax uses the same rates either way. Contractors can deduct business expenses, which lowers taxable income (and, if you claim the independent earner tax credit in the calculator, can change the credit, because it is tested on each column's own net income under ITA 2007 s LC 13), but they miss out on employer KiwiSaver contributions (3.5%), carry two ACC levies an employee never pays personally (the Work Account and Working Safer levies), and must manage their own provisional tax (if residual income tax exceeds $5,000) and GST (if registered).

If your turnover has exceeded $60,000 over 12 months, or is expected to over the next 12, you generally must register for GST. Below that threshold, registration is voluntary. When registered, you charge 15% GST to clients and pay it to IRD, but can also claim GST back on business expenses.

ACC invoices a self-employed contractor for three levies, not one: the earner's levy (1.67% for 2025-26, rising to 1.75% for 2026-27), the Work Account levy at the rate for your classification unit, and the flat Working Safer levy of 8 cents per $100. Only the first of those is deducted from an employee's pay — an employer is invoiced for the other two on its own account, so they are a real extra cost of contracting. ACC bills you directly based on your tax return, and if you work more than 30 hours a week it levies a minimum liable income level even when you earned less.

Yes, but it's voluntary. You choose how much to contribute and there's no employer match. You can make voluntary contributions directly to your KiwiSaver provider and still receive the government contribution (up to $260.72/year from 1 July 2025; halved from $521.43 under Budget 2025; taxable income of $180,000 or less for the tax year ending in the contribution year, or the year before if that return isn't filed by 30 June).