What a Charge-Out Rate Is Actually Made Of

Author : Christina Wood | Published On : 03 Sep 2026

It is a reasonable thing to think if you have never seen the cost stack underneath it. It is also wrong by a wide margin, and understanding why makes it much easier to work out whether a given rate is competitive or not.

Start with what a direct employee actually costs

Before comparing anything, price your own employee properly. The wage is not the cost.

On top of an hourly wage sit ACC levies, KiwiSaver employer contributions, annual leave, public holidays, sick leave and bereavement leave. Then add the costs that do not appear in payroll: PPE, tools, training and certification, recruitment and advertising, induction time, payroll administration, and the management hours spent hiring and inducting.

Depending on the role, sector and leave usage, the fully loaded cost of a permanent employee typically lands somewhere between 1.2 and 1.4 times the base wage before you account for downtime. That last item is the one businesses with variable demand consistently forget. An employee paid for 40 hours in a week with 28 hours of work has an effective cost per productive hour well above their rate.

Now unpack the charge-out rate

A labour hire charge-out rate covers the same statutory costs, plus the operating costs of the agency, plus a margin. Roughly, in order of size:

The wage. The largest single component, and it must meet at least the adult minimum wage of 23.95 dollars an hour, though for most operational roles it sits well above that.

Holiday and leave provision. Under the current Holidays Act this is typically 8 percent for casual arrangements or accrued entitlement for ongoing ones. From August 2028, when the Employment Leave Act 2026 takes effect, casual and additional hours attract a 12.5 percent upfront leave compensation payment instead. That change is already being modelled by suppliers and it will show up in rates.

ACC levies. Varies substantially by industry classification. Civil construction and forestry carry materially higher levies than warehousing.

KiwiSaver employer contribution. Applies to most employees.

Public holidays. Eleven days a year, plus any alternative holiday entitlements.

Payroll and administration. PAYE, timesheet processing, IRD reporting, and the systems that run them.

Recruitment and screening. Advertising, interviewing, reference checking, licence and ticket verification, right to work verification, and drug and alcohol testing where required. This cost is incurred whether or not the placement proceeds, and it is incurred repeatedly across a candidate pool that has to be maintained between orders.

PPE and consumables. Often supplied by the agency.

Insurance and compliance. Public liability, employer liability, health and safety systems, site visits and incident management.

Non-billable time. Every hour a recruiter spends on candidates who do not get placed, orders that get cancelled, and workers who are between placements.

Margin. What remains, and it is usually a smaller share of the gap than clients assume.

What you are actually buying

Strip away the arithmetic and there are four things in the rate that a direct hire does not give you.

Speed. A pool that already exists means people on site in days rather than weeks. In a market where South Island unemployment is 3.7 percent and Canterbury job listings have been growing while much of the country’s fell, that speed has genuine commercial value.

Risk transfer. The employment relationship, the leave liability, the ACC exposure and the cost of a mismatch sit with the agency. If a placement does not work, the arrangement ends without a dismissal process.

Volume flexibility. You pay for hours worked. Businesses that use labour hire nz arrangements for peak coverage are buying the ability to not pay for the trough, which is precisely the cost that makes permanent headcount expensive in a seasonal operation.

Screening and compliance. Verification of licences, tickets, right to work and visa conditions, maintained on an ongoing basis rather than checked once.

How to tell a good rate from a bad one

Ask what is included and what is billed separately. Common extras are PPE, site inductions, travel, testing, overtime loading and public holiday penalty rates. A lower headline rate with four extras attached is not a lower rate.

Ask how the rate moves with overtime, weekends and public holidays. Multipliers vary and they matter more than the base if your operation runs long weeks.

Ask about the temp to permanent conversion arrangement and whether the fee reduces over time.

Ask what the replacement guarantee is if a placement does not work in the first week.

Then compare on total cost across a full cycle. For a business with a genuine trough, labour hire frequently costs less per productive hour than permanent headcount even at a higher hourly rate, and for a business with flat demand, it usually does not. Both of those are useful things to know.

The question worth asking instead

Rather than asking why the margin exists, ask what it is buying in your specific case.

If you need twelve people for nine weeks in a market where you cannot hire twelve people in nine weeks, the margin is buying capability you do not otherwise have. If you need one person permanently and you have time to recruit, it probably is not.

The rate is not the question. What it replaces is.