Contracting vs Permanent Work: Making the Switch

Contracting in New Zealand (2025): a practical guide

As at 19 August 2025 (NZT). If you’re weighing up a move from permanent to contracting, you’re not alone. Rates for experienced tech professionals remain healthy, tax and KiwiSaver settings have shifted over the last 18 months, and there’s a proposed “gateway test” before Parliament that has people asking what might change. This piece is designed to help you make a confident call — what you gain, what you give up, how to set up properly in New Zealand — and where Sourced can help.

Why this conversation matters now

Two things are happening at once. First, demand for specialist capability is still there, especially in engineering, cloud, data, cyber, and delivery. That keeps day-rates competitive. Second, the rules are moving in small but important ways: income-tax thresholds moved on 31 July 2024; KiwiSaver’s Government contribution changed on 1 July 2025; and the Employment Relations Amendment Bill 2025 proposes a contractor gateway test that — if enacted — could give clearer up-front status for some contractors. As at today, the Bill is not law. The usual multi-factor tests still apply. If you take only one line from this section: opportunities are real, and so are the details.

The upside of contracting

For many mid-senior professionals the appeal is straightforward: earn more, keep more control, and do more interesting work. When you contract you can choose engagements that stretch you, decline the ones that don’t, and set a working rhythm that suits life. If you register for GST (15%), you’ll charge GST on your invoices and can claim input GST on eligible business costs. You also get to claim genuine business expenses before tax — the usual tools, software, professional development, mileage, and a proportion of home-office costs (within IRD rules). None of this is exotic, but together it adds up.

There’s also momentum. Contractors who manage their utilisation well often see stronger earnings over a year than an equivalent salary would have provided. Market guides (Hays; Absolute IT) give a useful signal for benchmarking day-rates — not gospel, but a sanity check before you quote. The mix of skill, scope, and client urgency then does the rest.

The trade-offs

Contracting is not a magic switch. You give up employee entitlements like four weeks’ paid annual leave, paid public holidays, and 10 days’ paid sick leave. There’s no employer KiwiSaver contribution. You wear the bench time between gigs, and holidays are only paid if you’ve budgeted for them. You’ll have admin to manage — invoicing, GST returns, provisional tax, and ACC. None of this should put you off; it just needs to be budgeted, planned, and supported.

This is where a good recruitment partner changes the experience. An agency that knows the contractor market will help you set realistic rates, position your skills, and keep work flowing. It also gives you a sounding board when terms or scopes shift. We’ve written in our advice series about choosing the right agency — the short version is: pick one that understands your niche, is transparent on rates, and stands beside you when the project wobbles. If you’re reading this on Sourced.nz, that’s us!

What Sourced brings to the table

Sourced has run contractor programmes across Christchurch and nationwide for years. We know the technology market, the employers, and the rhythms of project work. When you contract through Sourced, your onboarding is clean and compliant, rate discussions are informed by current demand, and Professional Indemnity and General Liability insurance are covered for our contractors. That last point matters: clients increasingly require proof of cover before access, and arranging it yourself can be time-consuming and expensive. We remove that friction.

We also smooth invoicing and timesheets via our in-house system and issue buyer-created taxable supply information (BCTIs) so you don’t need to invoice us — this is IRD-compliant under New Zealand’s GST rules.

We help with practical decisions too: talk with your accountant about starting as a sole trader (simple, quick to start) versus setting up a company (limited liability, brand separation, more admin). We’ll share neutral resources and introduce advisors, then keep your CV contract-ready (short, outcome-led, with the right tools and environments).

The legal status today – and the gateway test

You don’t need to memorise legal tests. At a high level in New Zealand, whether you’re an employee or a contractor comes down to how you actually work — not just what a document is titled. If you contract with us, we’ll make sure the engagement terms and day-to-day expectations line up with contracting. If you want to read more, see Employment NZ and Inland Revenue. For context on the proposed policy shift, the Government’s summary of the gateway test is a helpful overview. As at 19 August 2025, the Bill sits with a Select Committee and is not yet law.

How to set up well

Start by thinking about structure. We’re not your accountant, so we won’t tell you which to choose — discuss the options with a qualified advisor. Many people begin as a sole trader because it’s quick to start and easy to unwind. If you want limited liability and brand separation, set up a company through the Companies Office.

Next, keep an eye on GST. You must register once you expect to exceed $60,000 of taxable turnover in any 12-month period, though you can register sooner if it suits you. Registration means charging GST on invoices and filing returns; it also lets you claim input GST on eligible costs. Pick a filing basis that matches how you invoice and get paid.

Budget for ACC. For 2025/26 the Earners’ Levy is 1.45% (excl. GST) — 1.67% including GST; if you later employ staff, there is also a Work levy based on classification. Inland Revenue and ACC publish the current rates and handy calculators. This is not a large cost relative to day-rates, but it’s one to plan for.

If you’re paid via a labour-hire or recruitment company under schedular payments, complete the IR330C to set your tax rate. If you don’t, the non-notified rate defaults to 45% (or 20% for non-resident contractor companies), which can hurt cash flow. We help contractors get this right on day one so there are no surprises at the first remittance.

A quick word on visas. Some work visas don’t allow self-employment. The Accredited Employer Work Visa (AEWV) is typically tied to a single employer, while contracting on your own account usually needs open work conditions or a different visa. If that’s you, check your conditions before you move — and ask us; we can point you to the right official guidance.

Budgeting, cash flow and getting paid

You don’t need to become a CFO to manage contractor finances. Start with a simple rule of thumb: budget for actual working weeks, not calendar weeks. If you want three weeks off across the year and expect a couple of light weeks between gigs, reflect that in your day-rate from the outset. Hold a modest cash buffer (two to three months of core costs is a good target over time). Keep your paperwork tidy and predictable.

Most clients in our market work on agreed terms and pay reliably when paperwork is complete. We’ll help you set expectations up-front, guide you on timesheeting and purchase orders, and step in quickly if something needs a nudge. With Sourced’s system and BCTIs, payments are streamlined — no invoices from you are needed.

Is contracting for you?

If you’re a senior individual contributor or specialist with portable skills, comfortable with ambiguity, and energised by new problems, contracting can be an excellent fit. If you prefer a steady team, clear career ladders, and paid leave, it may feel like a step too far — and that’s fine. We often talk with people who are “contract-curious” but not ready yet. Sometimes the right move is a fixed-term role first, or a single contract through Sourced while you decide. The decision doesn’t have to be forever.

How we’ll help you move, step by step

Our process is simple. We meet to understand your skills, goals, and appetite for risk. We compare permanent vs contract outcomes using real numbers, not wishful thinking. We tune your CV for contract work and map target clients. We advise on structure, GST, ACC, and IR330C at a practical level (with links to the official pages so you can read the rules yourself). When the right brief lands, we handle intros, help negotiate scope and rates, and stay close through delivery. Between gigs, you’re not on your own — we’ll line up conversations ahead of time to keep your utilisation strong.

Useful links

Educational overview (not personalised advice)

This is general information for New Zealand readers. It is not tax, legal or immigration advice. For the rules, use the official links above. If you’d like a second pair of eyes on your situation, or simply want to talk through whether contracting is right for you, get in touch with Sourced — we’re happy to help you map the next step and, if the timing is right, place you into a contract with the right protection (including PI and General Liability insurance ).

Contracting in New Zealand (2025)