Sole Trader vs Employee Break-Even Calculator
Find the earning point where sole trader income matches your employee salary. Compare after-tax take-home between employee PAYE and sole trader with business expenses.
Employee
Sole Trader
Employee vs Sole Trader: Understanding the Break-Even Gap
When you move from PAYE employment to sole trader self-employment, your tax picture changes in several important ways. As an employee, tax is deducted automatically from your salary. As a sole trader, you pay tax on your net profit (gross earnings minus business expenses), and you are responsible for calculating and paying your own tax — including provisional tax instalments.
The key insight: a sole trader earning the same gross as an employee will generally take home less. That is because the employee has no business costs layered on top, and ACC is handled differently. To match the employee's after-tax income, the sole trader must earn more gross — and this calculator finds exactly how much more.
Business expenses play a critical role. The more legitimate expenses you can deduct, the closer your sole trader break-even gets to your employee salary. A sole trader with $0 expenses essentially competes on a level field with the employee (both pay tax on the full gross), while a sole trader with high expenses (tools, vehicle, home office, professional fees) needs to earn significantly more gross to cover those costs and still match the employee net.
Use the sole trader tax calculator for a full self-employment tax breakdown including GST and provisional tax, or the contractor vs employee calculator for a detailed side-by-side comparison. If you are comparing net pay scenarios, see the take-home pay calculator.
Frequently asked questions
How are employees and sole traders taxed differently in NZ?
Employees have PAYE (income tax + ACC levy) deducted automatically from each pay by their employer using a tax code. Sole traders pay income tax on their net profit (gross earnings minus business expenses) at the same progressive rates (10.5%–39%), but must calculate and pay their own tax. Sole traders also pay ACC levies based on their earnings, manage their own KiwiSaver contributions (voluntary), and may need to pay provisional tax if their residual income tax exceeds $5,000.
Why does a sole trader need to earn more gross to match an employee's take-home pay?
Three reasons: (1) Business expenses come out of the sole trader's gross first — the employee has no equivalent cost layer. (2) ACC levies are calculated on the sole trader's gross earnings, whereas employees pay ACC through PAYE on a capped salary. (3) Sole traders cannot claim employer KiwiSaver contributions (3%–4% extra that employees effectively receive). To cover expenses and still have the same net, the sole trader must generate higher gross revenue.
What business expenses can a sole trader deduct?
Sole traders can deduct expenses that are incurred in earning their business income. Common deductions include: home office costs (proportion of rent/mortgage interest, power, internet), vehicle expenses (logbook or per-km rate), equipment and tools (outright or depreciated), professional fees (accountant, lawyer), insurance (public liability, professional indemnity), phone and internet, marketing and advertising, travel, training, and bank fees. You must keep records for at least 7 years.
How does ACC differ for employees vs sole traders?
Employees pay the ACC Earners' Levy through PAYE (1.67% in 2025-26, 1.75% in 2026-27) on earnings up to the annual cap ($139,384 for 2025-26, $156,641 for 2026-27). Sole traders pay ACC through two levies: the Earners' Levy on their profit, plus a Work Account levy based on their industry classification. Sole traders typically pay a higher combined ACC rate than employees, which contributes to the break-even gap.
Does GST affect the break-even calculation?
Not directly. GST is passed through to IRD — sole traders collect 15% GST on top of their invoices and claim back GST on business purchases. The net GST position does not affect take-home pay. However, if your annual turnover exceeds $60,000, you must register for GST, which adds compliance costs and may affect your pricing. This calculator focuses on the income tax and ACC differences; use the sole trader tax calculator for a full GST-inclusive picture.
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Sources
Tax rates from Inland Revenue (IRD). ACC levy rates from ACC. Sole trader tax obligations from IRD — Self-employed. Business expense deductions from IRD — Claiming Business Expenses.
Last updated April 2026. Rates sourced from IRD and ACC.