How to budget for KiwiSaver, ACC, leave provisions, tools and equipment

Why this matters

The number on the agreement isn't the total cost

Before you commit to hiring, it's worth understanding what an employee actually costs. The number on the employment agreement is not the total cost to your business.

This matters for two reasons. First, so you can budget accurately. Second, because many new employers underestimate on-costs and find themselves in cash flow difficulty in the first few pay runs. A little planning now saves a lot of stress later.

The costs on top of gross wages

What you pay beyond the wage figure

Beyond the gross wage figure in the employment agreement, there are several additional costs you need to account for as an employer.

KiwiSaver employer contributions From 1 April 2026, you must contribute a minimum of 3.5% of your employee's gross wages to their KiwiSaver on top of their pay. This is your cost, not a deduction from their wages. It increases to 4% from 1 April 2028, so if you're budgeting for a role you expect to be ongoing, factor in the future rate too.

ACC Work Account levy As an employer, you pay an ACC levy based on the type of work your employees do and your total liable payroll. The rate is set by ACC based on your Business Industry Classification code and varies significantly by industry. Trades and agriculture pay higher rates than desk-based work. You'll receive an invoice from ACC annually and it doesn't come through your payroll. ACC's website has a levy calculator if you want to estimate what to expect.

Annual leave After 12 months, your employee is entitled to four weeks of paid annual leave. That's four weeks of wages you pay out without getting four weeks of work in return. If they leave your business, you have to pay out any outstanding leave balance. It's not a perfect number, but budget around 8% of your employee's gross pay per year to cover this.

Sick leave From six months, your employee is entitled to 10 days of paid sick leave per year. Most employees won't take all of it, but it's a real cost when they do. A reasonable planning estimate is around 4% of gross pay per year.

Public holidays There are 11 public holidays per year during which you may need to pay your employee when they're not working, or pay additional entitlements if they do work. Budget approximately 4% of gross pay per year to cover this.

Other costs

Recruitment, onboarding, and equipment

Time to recruit, onboard, and train The time you spend finding, interviewing, hiring, and training a new person has a real cost. For a small employer, recruitment can easily absorb several days of your time. Factor this in when you're thinking about the full investment of a new hire.

Tools, equipment, and allowances Depending on the role, you may need to provide or contribute to the cost of equipment, workwear, or tools. This varies enormously by industry:

• A tradesperson may need personal protective equipment, safety boots, and trade-specific tools. Whether you supply these, provide an allowance, or expect the employee to supply their own should be clear in the employment agreement.
• A driver may need a vehicle, or a vehicle allowance if using their own. IRD sets kilometre rates for reimbursement.
• An office-based worker may need a laptop, phone, or home office equipment if working remotely.
• Uniforms or branded clothing, where required, are generally your cost as the employer.

Worth knowing If you require specific tools or equipment as a condition of the role, you generally cannot pass that cost entirely to the employee without their agreement. Get advice if you're unsure how to structure this.

Worked examples

Two examples to show the maths

These examples use rounded figures to illustrate the concept. Use the employee cost calculator at business.govt.nz for your own accurate estimate, and factor in your specific industry's ACC levy rate.

Example 1: Part-time café worker, 20 hours per week at $24 per hour

That's around $577 per week, or approximately $30,000 per year, compared to the $480 gross wage figure that appears in the employment agreement. The real cost is about 20% higher than the headline wage. In hospitality you'll also need to budget for uniforms and potentially non-slip footwear, plus the time to train a new person in your service standards and food safety requirements.

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Example 2: Full-time tradesperson, 40 hours per week at $35 per hour

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That's around $1,700 per week, or approximately $88,500 per year, versus $1,400 in gross wages. Again, roughly 20% higher than the headline figure. For a tradesperson you'll also need to factor in tools and equipment (either supplied by you or via a tool allowance), PPE and safety gear, vehicle or travel allowances, and potentially licences or certifications the role requires. In construction and trades these additional costs can be significant, in some cases adding another $5,000 to $15,000 per year to the real cost of employing a qualified tradesperson.

The 20% rule of thumb

An employee costing you 20% more than their gross wage is a reliable rule of thumb across most industries, before any tools or equipment are factored in.

That's not a reason not to hire. It's just the number you need to plan around.

Calculate your own estimate Employee cost calculator at business.govt.nz

Check your ACC levy rate ACC levy calculator at acc.co.nz

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