The Pros and Cons of Being a Contractor vs. an Employee in NZ
The line between being a contractor and an employee isn’t just paperwork; it shapes how you earn, what rights you hold, and how much control you have over your day-to-day work. Employees work under a contract of service and fall under the Employment Relations Act. Contractors, on the other hand, work under a contract for services, running their own business and setting their own terms.
Many Kiwi’s weigh this choice between freedom and security. Contractors tend to chase flexibility and higher income, while employees often prefer the steady rhythm of regular pay and workplace benefits. Here’s a closer look at what each path offers, and what it demands.
Advantages of Being a Contractor
Freedom and Control - Contractors can pick their projects, choose their hours, and work where they please. This independence gives them space to grow their skills and shape a career on their own terms.
Higher Earning Potential - Hourly or project-based rates often mean contractors can charge more than an employee earns in the same role. When business is steady, income can rise well above a fixed salary.
Tax Deductions - Running your own business opens the door to claiming expenses such as tools, travel, or accounting services, which can help lower taxable income.
Variety of Experience - Working with different clients keeps the work fresh. It builds confidence, widens networks, and sharpens problem-solving across industries.
Disadvantages of Being a Contractor
No Paid Benefits - There’s no annual leave, no sick pay, and no public holiday pay. Every day off can mean lost income.
Managing Your Own Taxes - Contractors handle their own GST, ACC levies, and income tax returns. Without solid systems or an accountant, it can get messy fast.
Uncertain Income - Work can come and go. Some months are strong, others thin. Planning ahead becomes essential.
More Risk, More Responsibility - Contractors shoulder business costs, client disputes, and the pressure of keeping work flowing.
Advantages of Being an Employee
Steady Pay - Employees can count on regular income through the PAYE system, where tax and levies are sorted automatically.
Legal Protection - Employment law in New Zealand gives workers access to fair treatment, personal grievance rights, and formal dispute processes.
Paid Leave and KiwiSaver - Sick days, annual leave, public holidays, and employer KiwiSaver contributions all provide peace of mind and stability.
Less Administration - With payroll taking care of taxes and deductions, employees can focus on the job itself.
Disadvantages of Being an Employee
Lower Hourly Pay - Employers cover benefits, taxes, and levies, which means hourly rates are usually lower than what contractors charge.
Limited Control - Work schedules, duties, and methods often come from the top down. There’s less room to shape your own path.
Dependence on One Employer - Job security is reassuring, but restructuring or redundancy can still leave you vulnerable.
Legal and Compliance Considerations
In New Zealand, what defines a worker isn’t only what’s written in the contract. It’s about the nature of the relationship; who directs the work, who provides the tools, and how independent the person truly is. Misclassifying a worker can lead to penalties, unpaid entitlements, and legal trouble.
Both individuals and businesses need to be clear from the start. Contractors must manage their GST and income tax properly, while employers should make sure their people are correctly classified under employment law.
Making the Right Choice
When you weigh up your options, ask yourself:
Do you want steady pay or flexible earnings?
Would you rather manage your own taxes or have someone else do it?
Is independence more valuable to you than structure?
Can you handle the financial ups and downs that come with contracting?
For employers, the decision matters too. Hiring employees builds loyalty and stability, while contractors offer flexibility and lower fixed costs. But mistakes in classification can lead to expensive backtracking and legal risk.
How Affinity Accounting Can Help
At Affinity Accounting, we work with both contractors and employers to make these choices easier. Our team helps set up tax systems, manage compliance, and ensure everyone is correctly classified under New Zealand’s employment framework.
Whether you’re striking out on your own or growing a team, getting the right advice early helps you stay compliant, confident, and financially steady.
In the end, there’s no single right answer. It’s about the balance that suits your life, between freedom and security, between control and consistency. What matters most is understanding what each path really means before you take the next step.
What our clients say
“We are so happy we’ve found a business accountant in Wellington that is approachable, professional, proactive and really takes the time to explain in a no judgement way how we can meet our obligations and improve our business finances. We highly recommend Affinity Accounting to any of our friends and contacts.”
-Steph Adriaansen-Fink