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Contractor vs. Employee: Which is Best For Me?

There are two main options when it comes to work within New Zealand; to work as an employee, or to work as a contractor. Each path offers a unique set of benefits and challenges that you may not have considered before.  

If you’re thinking of making a career change, you’re just entering into the workforce, or you’re thinking of buying a house and are wondering what sort of implications your work status may have on your lending ability, then keep reading.  

In this article we’ll take a closer look at the pros and cons of being a contractor versus an employee to help you decide which option may be the right fit for you.  

But first, what is the main difference between an employee and a contractor?  

The main difference between an employee and a contractor lies in their relationship with the employer and the level of control they have over their work. An employee works directly for a company, following its rules, policies, and schedules. They receive a regular salary or wage, and the employer provides benefits such as paid leave, health insurance etc. Employees have a relatively stable and predictable work environment, but they have less control over their tasks and work conditions. 

However, a contractor operates independently; offering services to clients on a project-by-project basis. They set their own hours, choose their clients, and decide how to complete their work. Contractors are typically paid per project or hour, and they do not receive traditional employee benefits such as paid leave. While they have more flexibility and control over their work, contractors also face income variability and must manage their own taxes, business expenditures etc.  


What are the pros and cons of being an employee? 

Pros of Being an Employee 

  1. A Stable Income 

Employees receive a regular pay check, providing financial stability and predictability within their life. Knowing your monthly income can make budgeting and financial planning a lot easier. Even if work is slow or incredibly busy, you’ll still receive the same weekly, fortnightly or monthly income with a potential for bonuses at the end of the year depending on which company you work for/what industry you’re in.  

2. Employee Benefits 

Employers provide benefits such as paid leave, sick days, and some even offer health insurance. Many employers also offer additional benefits like KiwiSaver, additional training, equipment such as company cars and phones, and professional development opportunities. 

 3. Less Responsibilities 

As an employee, you don’t need to worry about finding clients, managing business operations, or sorting out your own taxes – and your job responsibilities are usually well-defined, allowing you to focus on your specific role. Of course, if you’re a Manager or are in a C-suite role, you’ll still be responsible for your direct reports.  

4. Daily Social Interaction 

Working with colleagues provides opportunities for social interaction, teamwork, and collaboration. Being part of a team can be motivating and enjoyable, contributing to a positive work environment. 

 5. Less Risk in the Eyes of the Bank 

Generally speaking, the banks view you as lower risk if you’re an employee as opposed to a contractor. This is due to a consistent stream of income i.e. regular pay, better job security, a steadier career path, and more benefits and protections such as parental leave.  

Cons of Being an Employee 

  1. Less Flexibility within Work & Working Environment 

Employees typically have set working hours and must adhere to company policies and procedures. You have less control over your work environment such as working from home etc. how you complete your tasks and in what timeframe. 

2. Limited Earnings Potential 

Your salary as an employee is usually fixed, with limited potential for significant increases. Promotions and raises depend on company performance and policies, which can limit your earnings growth. Performance-based bonuses may be given yearly depending on which company you work for.  

3.Job Security 

Although seen as far more secure than contract work, job security as an employee is not always guaranteed. Companies can undergo layoffs, restructuring, or changes in business direction. Economic downturns or company-specific issues can impact job stability. 

4. Less Control & Freedom 

As an employee, you must follow your employer’s instructions and guidelines. You also have less freedom to choose the projects you work on and how you approach your work. 

Contractor vs. Employee: Which is Best for Me?

What are the pros and cons of being a contractor? 

Pros of Being a Contractor 

  1. Flexibility within Work & Working Environment 

As a contractor, you have the freedom to set your own working hours. This means you can work when it suits you best. You can also choose where you work; whether it’s from home, a co-working space, or even while traveling, the choice is yours. You can also take on a variety of projects, keeping your work interesting and diverse. 

 2. Higher Earnings Potential 

Contractors often charge higher rates than employees. This is because they are responsible for their own taxes and benefits. You have the potential to take on more projects and clients, increasing your overall income. 

 3. Tax Deductions 

As a contractor, you can deduct business-related expenses. This includes costs like travel, office supplies, and equipment. These deductions can lower your taxable income, potentially saving you money. 

 4. Greater Control Over What You Do 

You have greater control over the work you do. You can choose the projects that interest you and decline those that don’t. You can decide how to complete your work, without needing to follow strict company procedures. 

Cons of Being a Contractor 

  1. Income Uncertainty 

Your income as a contractor can vary each month. Some months you might have a lot of work, while others might be slow. Finding new clients can be challenging, time-consuming and costly. 

2. No Employee Benefits 

Unlike employees, contractors do not receive paid leave, sick days, or employer-provided health insurance. You need to plan and save for your own retirement, as there is no employer contribution to a retirement fund. 

3. Higher Responsibilities 

Managing your own business comes with additional responsibilities. This includes handling your taxes, insurance, and other administrative tasks. You need to actively find and maintain your own work, which can be demanding, as well as sort out your own tax and Kiwisaver contributions. 

 4. Isolation 

Working as a contractor can be isolating, especially if you work from home. You might miss out on the social aspects of working in a team environment, such as office camaraderie and networking opportunities. 

5. More Risk in the Eyes of the Bank 

Although you may make more than an employee in the same industry, the banks still view contractors as a lot riskier to take on than employees. This is due to a somewhat inconsistent stream of income at times, the risk that work could run dry depending on the industry you’re in, and limited benefits and protections. When it comes to purchasing a house, the bank usually requires at least two years of IR3’s (Individual Income Tax Return) if you’re a contractor to show your income is consistent. Before buying a house, it’s a good idea to speak to an Accountant or a Mortgage Broker that specialises in self-employed people because we would be able to give you the guidance on how much income you’d actually need to ascertain in order to get a mortgage. 


Deciding between being a contractor or an employee in New Zealand depends on your personal preferences, career goals, and desired lifestyle. If you value flexibility, control over your work, and are comfortable with some risk and uncertainty, contracting might be the right choice for you. However, if you prefer stability, a steady income, and the benefits that come with being an employee, then traditional employment might be better suited for you. 

Consider what is most important to you in a job. Do you thrive on independence and variety, or do you prefer the security and structure of a regular pay check and benefits? By weighing the pros and cons, you can make an informed decision that aligns with your career aspirations and personal circumstances. 

If you’re thinking of purchasing your first home and you’re a contractor or have recently made the switch to contract work and need some advice around your mortgage, book a 15-minute mortgage advice consult with us now by clicking the link below. 

Our self-employed income specialist mortgage adviser will look at your financials, give you an idea of how much you can borrow and how to present your contractor income to improve your chances of getting an approval.