Paying Contractors

There are generally five things to do when setting up a contractor.

  1. Set the tax rate to Witholding Tax.
  2. Add a non taxable allowance for GST calculated at 15% of gross if the contractor is registered for GST.
  3. Exempt from KiwiSaver.
  4. Disable Holiday Pay.
  5. Disable Sick Leave.

Once the above are done, payment to the contractor automatically flows through to the direct credit methods, and the IRD returns.

If the contractor is registered for GST, then 15% of gross is added to all payments.


Go to Employee - Modify Employee Details - Personnel.

After clicking Tax Code choose the Witholding Tax (WT) code as shown below and enter the percentage required.

This tax code deducts tax at a percentage rate without the addition of earner premium.


If you need to pay GST to the contractor, you would now click Allowances to add the GST allowance.

This allowance would have been set up as a non taxable allowance called GST 15% or similar, with the calculation method set to Percentage Of Gross and the rate 15.0. The same GST allowance can be used for all contractors.

For more help setting up a GST allowance in the first place, see Handling of GST Changes in Ace Payroll


Generally a contractor will be exempt from KiwiSaver. Click on the KiwiSaver tab and change their status to Definitely Exempt.


Now click on the Leave tab .

A contractor does not receive Holiday Pay.

Click on Holiday Pay and then Calculation Method to turn off the holiday pay.


Staying on the Leave tab , click into Sick Leave Owing then Accumulation Method and change to Not Eligible.


You are now done.

  • The tax code is set to WT.
  • Leave and KiwiSaver are turned off.
  • GST is automatically added to the pay as a non taxable allowance calculated at 15% of gross pay if required.
  • If a bank account is loaded to the contractor then payments are direct credited automatically with all other regular payments.
  • Witholding tax flows through to the various IRD returns.

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