Should You Go Contracting?

Published: 
March 16, 2021

Thinking about becoming a contractor? Here's what you need to know before starting.

Should you go contracting?

This is a question many skilled professionals in New Zealand will think about at some point. But what does it mean to be a contractor, and what are the pros and cons?

Being a contractor in New Zealand usually means that you are doing short to medium term engagements with clients, with each contract being unique in the amount of time that you are contracted for, the deliverables required, and your contract rate.

What are the pros of contracting?

  • Money - Many people look to start contracting because of the lucrative nature of the work. As a contractor, you will earn a higher hourly or daily rate compared to being a salaried permanent employee. This can often be double what you would earn as a permanent employee.
  • Variety - You will have the opportunity to work on many different projects when contracting. For example, you could work on four different projects in a year with four 3 month contracts. This can enable you to learn and gain experience quickly across different industries, projects, and technologies.
  • Flexibility - Contracting allows you to choose specifically what work you would like to do, when to do it, and where.
  • Tax Efficiency - Being a contractor often means that you can reduce your total tax bill. While you do not need to run a company as a contractor, doing so can allow you to reduce your taxable income.
  • Networking - Because you're working on more projects and companies, you'll have the opportunity to expand your professional network and build new relationships.

What are the cons of contracting?

  • Demand Fluctuation - Being a contractor means that you will be in search of new work often. Part of being a contractor is being prepared for gaps in demand for your services from companies. You may need to wait for weeks or months in between contracts - so being prepared and having strong cashflow management is an important skill to have as a contractor. Also, contractors are the first to be axed when the going gets tough. We saw this in 2020 when COVID hit and companies needed to cut costs fast.
  • No Work, No Income - As a contractor you will not be entitled to the common permanent perks like annual leave, sick leave, or any other benefit offered by an employer. If you're not working, you're not being paid. This means that you need to plan for your holidays and be able to take the income hit if you get sick. However, this should be factored in to your calculations because of the higher income you'll be earning.
  • Taxes and Accounting - As your own boss, you'll need to manage your tax liabilities. You can contract as a Sole Proprietor or as an employee of your own Limited Liability Company, but either way you will need to be paying your income taxes, GST, ACC, and any other liabilities you may have. If you don't remember your Accounting 101 classes, a good accountant can make your life a whole lot easier. Also, remember to get contractor insurance! You should have insurance to cover the work you are doing for clients. You do not want to be footing the bill if something goes wrong.

Everyone's situation is different, so weighing up the pros and cons is important to see if contracting is right for you. If you have been a permanent employee for a while, contracting can be an exciting and lucrative change, especially in the IT industry in New Zealand!

If you want to have a chat about contracting or contract roles, head over to our careers page here, or flick me a message at nathan.masters@taska.co.nz

Written by

Nathan Masters