Is contracting right for you?

By Zahn Van Zonneved


​Contracting is a very popular option for IT professionals in New Zealand and offers a great opportunity for you to take control of your career and gain new experiences. However, if you have only ever worked in permanent roles, switching to contracting requires a real shift in mindset, process, and lifestyle.

While many prefer the contracting lifestyle and the benefits that come with it, it's important to understand that there are a number of new obligations that you'll also need to weigh up. To help ensure you are considering both the pros and cons before you take the leap, we've summarised the main key points below to kick off your research.

Please note that this article is designed merely as a starting point for your thought process and research. We at Comspek International strongly advise engaging with a certified accountant and /or referring to the IRD website for more up-to-date, formal information.

The Pros

More flexibility

Contracting offers you the opportunity to integrate work into your lifestyle. You have the freedom to take on contract assignments when it suits you and it can often be easier to build time into your schedule between gigs for longer holidays, renovating your house, whatever takes your fancy! This offers a greater work-life balance that may not be possible in a permanent role with limited annual leave. 

Premium pay rates

Contractors typically have specialised skills or expertise coupled with extensive experience. Because of this (and due to the risks involved which we'll get into later) there is generally a premium pay for the services carried out and you can expect to earn significantly more than as a permanent employee.

Exciting, short-term work with varied clients

With the short-term "gig" arrangements for contract engagements, your work will be a lot more varied than if you were working in a permanent job. If you're interested in a company or industry, you can take on the assignment with the knowledge that it's not forever. This allows for a variety of experiences and is ideal for those who enjoy coming in and hitting the ground running to deliver projects under tight deadlines rather than BAU work. 

You'll also gain exposure to the different working styles, organisational structures, personalities, and cultures that come with each company and learn which best suits your own. This allows you to upskill yourself and gain new knowledge, both in terms of technical and soft skills, while on the job. These broad experiences help you become more adaptable and more suited to future opportunities.

Ample networking opportunities

One of the key benefits of contracting is the rich networking opportunities, and the ability to build relationships across a range of different companies. By providing an outstanding service to each employer you work for, you will gain a great reputation in the industry. This will open the door to more opportunities in the future. 

The Cons

No paid leave or benefits

As a contractor, you are only paid for the hours you work. This means that you don't get paid for sick leave, public holidays, vacation time, etc. so it's important to budget for this - i.e. five days a year for when you may fall ill, the 10 NZ public holidays, and an additional anniversary day per province e.g. Auckland Anniversary Day, as well as any vacation time you want to set aside and some spare time that you may need between gigs. 

Another thing to remember is that as a contractor, you are not automatically enrolled in a KiwiSaver scheme. This is something you must set up and pay into yourself. 

Job insecurity and potential gaps between contracts

​Contracting means you're not legally entitled to a paid notice period if the client decides to terminate your contract early for whatever reason, although it's worth noting that your agency will always do their best to make that happen.

You may also have to get used to the possibility of having unplanned gaps between the end of one contract and the start of another, depending how in-demand your skills are in the market. It's normal to want to rely on continuous work and to get stressed when you don’t have it. Keeping alert when working for any clues internally as to what will happen with your contract can help you predict your next move. It's also worth constantly keeping a pulse on the market to hear what other opportunities might be available. A good rule of thumb is to enquire about a possible extension with your agency and/or to start looking for more work at least a month before your contract is due to end. 

GST Registration

If you are projected to earn over $60,000 a year through your work as a contractor, you are required to register for GST on the IRD website.

Deciding how to operate

You've got two choices when it comes to how you'd like to conduct business as a contractor. You can choose to operate as a Sole Trader (essentially the simplest way to be self-employed) or you can choose to set up your own Limited Company. Typically, "career" contractors who do not intend to return to full-time, permanent employment enjoy the most benefits from a Limited Company arrangement.

There are pros and cons to each option, so it pays to understand what each might mean for you. There is some great information to help you choose a business structure here. You may also wish to engage with an accountant on this further, as they will be able to provide more comprehensive information specific to your individual situation. 

New tax obligations

Regardless of your contracting status, when you are providing your services via a recruitment agency such as Comspek International, you will be classified as someone who receives schedular payments.

Comspek International pays all contractors on a monthly basis through Comspek's payroll team and requires all contractors to complete and return an IR330C form. This form indicates which tax rate you'd like to apply to your schedular payments.

Depending which rate you choose, this typically covers some, but not all, of your tax obligations as a contractor. There will typically still be some tax that you’re required to pay on your own. If you'd like to be paid gross, you'll need to provide your agency with a tax-withholding exemption certificate from IRD, which can be obtained via your accountant. Again, this is something worth discussing with your accountant and/or doing more research on via the IRD website.

Insurance requirements

As a contractor, most agencies and clients require you to obtain Professional Indemnity Personal Liability (PI/PL) insurance to cover you while you’re at work. You can obtain this insurance through a third-party agency if you'd like, or when working with an agency like Comspek, we can supply this for you at a small cost. It's important to note that different clients have different minimum coverage requirements, so you'll need to ensure that your insurance covers you accordingly.

New timesheet & invoicing processes

As a contractor, you can no longer count on getting paid automatically, which is a big change for people who are accustomed to being on salary. Each recruitment agency will have their own invoicing process, so it's important that you familiarise yourself with this to ensure you get paid each month.

At Comspek, you are required to log your hours/days worked at the end of each calendar month in our online timesheeting system, Invoxy. (You will have received an invite to register on the Invoxy website following the return of your completed engagement paperwork).

Once your time has been logged, your manager will receive a notification requesting their approval. Once your manager has approved your logged time, you will then receive an approval notification from Invoxy.

From there, you will need to complete and send an invoice for your time worked to Comspek's payroll team, ensuring it matches up with the approved time in Invoxy and the rates indicated on your IR330C form. Your accountant may have an invoicing template that they recommend using, or you can download example templates online.

Your completed invoice needs to be received by the Comspek team no later than the fifth working day of the month following the time worked. You will then receive payment via direct deposit by the 21st, or the next working day depending when that falls.

If contracting sounds like the right move for you, partnering with an agency like Comspek International is a great way to secure a role and gain insight on the market from the experts. Please get in touch today with our Auckland or Wellington teams!

Photo by Kelly Sikkema on Unsplash