How To Become An Independent Contractor In NZ

It can be liberating to become your own boss and contract for work instead of working as an employee for an employer. It can also be refreshingly rewarding and challenging to be able to be the master of your own destiny and take full responsibility for the results.

So if that sounds appealing to you, read on to find out how to become an independent contractor in New Zealand, how to reduce your risk via business insurance such as contractor insurance and what lies ahead for your career as a contractor.

Why should you become a contractor?

Contrary to popular belief, contracting may not be the right fit for everyone. But if you’ve decided that contracting is right up your alley and suits your personality, lifestyle, and your preferred way of working, here are some of the most common benefits that contractors enjoy:

  • You can earn more by building a reputation as a reliable provider of high-demand skills or services.
  • Unlike a salaried position, you can increase your income if you want to.
  • You have more freedom to work when you like and how you like (i.e., not strictly nine to five, five days a week.
  • You can experience different industries, different workplace cultures, and different uses of your skills in different companies.
  • You will expand your horizons and work with a wider range of people to broaden your horizons.

What is working as a contractor like?

Many people considering becoming an independent contractor fear the possibility of long periods without any income. This may prevent them from committing to contracting. Many people see employment as a safer financial option. But if you are motivated and your skills are in high demand, then it all comes down to being organised.

Be strict with you financial planning

Ultimately, to succeed long-term as an independent contractor you need to be strict with your financial planning. Because they are self-employed, independent contractors are not covered by the Employment Relations Act or the Holidays Act 2003. As such, as an independent contractor you will have no entitlement to paid sick leave, bereavement leave, or annual leave. If a dispute arises between you and the organisation you do work for, you will not be entitled to raise a personal grievance claim.

Choose your business structure

As a contractor you can choose to be a sole trader or a company. There are pros and cons to each option, so it pays to understand what each would mean for you.

A sole trader is a person who owns a business as an individual. They’re entitled to keep all profits after tax, and they’re legally liable for any debts and losses incurred by their business.

On the other hand, a company is a separate legal entity from its owner or owners and has its own IRD number and NZBN. Under a company business structure, your personal assets are protected from any losses incurred by your business.

Consider the costs

While this point will depend on the field that you work in, it’s worth noting that contracting can have significant set-up costs. For example, you may have to purchase a vehicle if you are a truck driver or courier driver, or you may be required to incur other significant set-up costs to make the transition from employee to contractor.

Consider how long it will take to repay any loans before you spend large amounts of money to become a contractor. Consider what happens if your company loses clients and can’t replace them.

Understand how contractors get paid

In most cases independent contractors will send their client an invoice for payment for services rendered. This will be at an agreed time, such as on completion of a job, or for work completed to date either fortnightly or monthly. The Business NZ website has a clear list of what to include in each invoice. It also provides a free template to help you get started.

Online accounting software, such as Xero and MYOB, makes it easy to create and send invoices, as well as keep track of whether an invoice has been paid and when. Again, you’ll need to keep a record of all invoices sent and payments received for at least seven years.

Understand contracts for service

As the name suggests, as a contractor you will work under what’s called a contract for service, also known as a service agreement. As a new independent contractor, you will benefit from intimately understanding all facets of contracts for service. These documents carefully spell out the critical information as it pertains to your engagement with clients, including, but not limited to:

  • your hours of work;
  • how much you will be paid (make it 20 per cent higher due to having no leave entitlements);
  • when and how you will be paid;
  • what, if any, expenses they must reimburse you for;
  • the term of the contract (the period it runs for);
  • how you and your client will resolve disputes;
  • under what conditions either party can terminate the contract;
  • who will own any intellectual property (for example, software code, written documents) you develop while under the contract;
  • whether you can do work for the business’s clients, employees or competitors after your contract ends; and
  • whether you can subcontract any of the work to another person.

Track your time precisely

Contractors may be paid via an hourly rate hourly, a daily rate, or a fixed price upon completion of a job. You won’t get lunch breaks, or sick leave, and you may be required to make up for any time you take off work if you charge a daily rate. What this means is that it’s in the interest of contractors to precisely track their time; failure to do so could result in lost income.

There’s no doubt that contractors can encounter health and safety risks in the course of performing their trade services. But business insurance such as contractor insurance can be an effective and proactive means of reducing the risks to your business and your employees. BizCover can tailor your contractor insurance to match your specific risks and needs.

Reduce your risk with contractor insurance

Regardless of what industry you operate in as a contractor, or where you work in New Zealand as a contractor, BizCover is your one-stop shop for a wide range of business insurance products that you may be considering to reduce the risks to your business, including contractor insurance*.

BizCover helps contractors throughout New Zealand to reduce the risks to their business via contractor insurance. Choose BizCover for your contractor insurance, compare competitive quotes online from leading insurers, get covered in less than 10 minutes, and get on with your day. If you’d like to chat about your contractor insurance needs you can reach us at 0800 249 268.

*This information is general only and does not take into account your objectives, financial situation or needs. It should not be relied upon as advice. As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording. © 2022 BizCover Pty Limited. BizCover Limited is owned by BizCover Pty Ltd (ABN 68 127 707 975).

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