Contractor vs Employee Pay Calculator

How the contractor vs employee calculator works

Enter the salary for the employee job, before super, and the leave that comes with it: weeks of annual leave, days of public holidays and days of sick and carer’s leave. Then enter the contract rate, before GST, and whether it is per day or per hour, along with the hours in a working day, the days you expect to be without work between contracts, and your yearly business costs.

The calculator works out how many days you could bill as a contractor, your revenue and profit, and the day rate you would need to match the employee’s salary plus super. It also estimates take-home pay after income tax and the Medicare levy for both, assuming the contractor puts aside the same 12% for super that an employer would pay.

The formulas

The calculation, step by step

1. Value the employee package: salary plus 12% super.
2. Count the days off: annual leave, public holidays and sick leave.
3. Take off gaps between contracts to find billable days.
4. Work out contractor revenue and profit after business costs.
5. Find the matching day rate that equals the employee package.
6. Compare take-home pay after tax for both.

What each side gets

Salary to day rate conversion

With 4 weeks of annual leave, 10 public holidays, 10 sick days, 10 days between contracts (210 billable days) and $3,000 of business costs:

How it works in plain English

An employee is paid for every weekday of the year, including leave and public holidays, and their employer adds 12% super on top. A contractor is only paid for the days they work, and must cover their own super, leave, insurance and business costs. So a contractor’s day rate needs to be well above the employee’s salary divided by 260 just to break even.

Once tax is counted, the comparison is closer than many people expect. Both pay tax at the same personal rates. A contractor may claim more deductions, but must also manage their own tax, super and paperwork, and has less security. Sources: ATO: Tax rates for Australian residents and ATO: How much super to pay.

Employee or contractor: who decides?

Calling someone a contractor does not make them one. Whether a worker is an employee or an independent contractor depends on the real working relationship. Since 26 August 2024, the Fair Work Act has required this to be decided by looking at the whole relationship, including how it works in practice, not just what the written contract says.

Factors that point towards being an employee include:

• the business controls how, when and where you work;
• you must do the work yourself and cannot pay someone else to do it;
• you are paid for time worked rather than for a result;
• the business supplies the tools and equipment;
• you are part of the business, for example in its uniform or on its roster;
• you do not carry the commercial risk of the work going wrong.

Factors that point towards being a contractor include running your own business with several clients, setting your own hours and methods, using your own equipment, being able to delegate or subcontract, being paid for a result, and bearing the cost of fixing mistakes.

The ATO uses similar factors for tax and super. Its employee or contractor decision tool gives a quick answer for many situations. If you are treated as a contractor but the relationship looks like employment, you may be owed super and other entitlements.

What paid leave is worth

Paid leave is one of the biggest differences between employees and contractors. Under the National Employment Standards, full-time employees get four weeks of paid annual leave (five for some shift workers) and 10 days of paid personal or carer’s leave each year. They are also paid for public holidays that fall on their ordinary working days.

On a $110,000 salary, a weekday is worth about $423. Twenty days of annual leave, 10 public holidays and 10 sick days add up to 40 days, worth about $16,923 a year. A contractor taking the same time off is paid nothing for those days, so their rate has to cover them.

Many employees also get leave loading of 17.5% on annual leave under their award or agreement, long service leave after many years, and paid parental leave from their employer in some workplaces. These are not included in the calculator, but they make the employee package more valuable.

Super for contractors

Employers must pay super guarantee of 12% of ordinary time earnings for employees from 1 July 2025. Contractors usually have to fund their own super. However, the super guarantee law has a wider definition of employee than the Fair Work Act: if you are paid under a contract that is wholly or principally for your labour, the business may have to pay super for you, even if you have an ABN.

If you do fund your own super, you can usually claim a tax deduction for personal contributions, as long as you give your fund a notice of intent and the contributions are within the concessional cap. The contributions are then taxed at 15% in the fund, which is often less than your personal rate.

The calculator assumes the contractor sets aside the same share for super as an employer would pay, so the take-home comparison is fair. If you plan to contribute less, your take-home would be higher now, but your retirement savings lower.

How tax works for contractors

A sole trader contractor pays income tax at the same personal rates as an employee, on their taxable income after business deductions. The main differences are how and when tax is paid:

• No withholding. Clients usually pay the full invoice, so you need to set aside tax yourself, unless you have a voluntary withholding agreement.
• PAYG instalments. Once your business income reaches certain levels, the ATO generally puts you into quarterly PAYG instalments, so you pay tax through the year.
• Deductions. You can claim business expenses, such as insurance, equipment, software and accounting fees, but the PSI rules may limit some.
• GST. Once your turnover reaches $75,000, you must register, charge GST and lodge BAS.

Our sole trader tax calculator works out how much to set aside from each payment. Many contractors put about 25% to 35% of each invoice aside for income tax, plus the GST portion if they are registered.

Personal services income

If most of your contract income is for your own skills and effort, it is personal services income (PSI). The PSI rules stop contractors from getting tax benefits that employees cannot, such as splitting income with a partner through a company or trust, or claiming deductions an employee could not claim.

You are treated as running a personal services business, and the PSI rules do not apply, if you pass one of four tests. The most common is the results test: you are paid for producing a result, you supply the tools and equipment needed, and you are liable for fixing defects. If 80% or more of your PSI comes from one client and you do not meet the results test, you generally cannot rely on the other tests without a determination from the ATO.

If the PSI rules apply, you can still claim many expenses, but not rent on your home, wages paid to an associate for non-principal work, or payments to a spouse for support work, among others. Our personal services income checker goes through the tests.

Business costs for contractors

Contractors pay for things that an employer would usually provide. Common costs include:

These ranges are general and depend heavily on your work. Many of these costs are tax deductible, which reduces their real cost, although the calculator does not separately count the tax effect beyond reducing profit. Add up your own expected costs for the most accurate result.

Contracting through an agency

Many contractors work through a recruitment agency. The agency charges the client a rate and pays the contractor a lower rate, keeping a margin. Contractors may be paid as sole traders with an ABN, through their own company, or as employees of the agency or an umbrella company.

If the agency pays you as an employee, often on a casual basis, it will withhold tax and pay super, and you may be entitled to a casual loading instead of leave. In that case, compare your hourly pay with the employee job differently: the casual loading of 25% under most awards is meant to make up for not getting paid leave.

Always check whether the rate you are quoted includes super and GST. A rate quoted “plus super” is worth 12% more than the same rate “including super”.

Pros and cons of contracting

Whether contracting suits you depends on your work, your appetite for risk and your finances. People with in-demand skills, a strong network and a cash buffer often do well. People who need a steady income, or who would struggle through several weeks without work, may prefer employment.

How gaps between contracts change the picture

Time without work is the biggest risk for contractors. Using the default example, a $110,000 salary compared with a $650 day rate and $3,000 of costs:

Six extra weeks without work turns a $16,800 advantage into a $9,200 shortfall. When markets slow, contracts are often the first to be cut, so allow for longer gaps than you hope for. A cash buffer and a network of clients and recruiters are the best protection.

The employer’s side of the comparison

Businesses compare employees and contractors too. An employee costs more than their salary: the business pays super, and may also pay payroll tax above the state threshold, workers compensation premiums, leave loading, and the costs of equipment, training and management. A contractor’s rate usually covers their own super, insurance and equipment.

That is one reason businesses are often willing to pay contractors a higher rate: they pay only for the days worked, can end the arrangement more easily and avoid some on-costs. But if the business controls the work like an employer, it may still be liable for super, payroll tax and entitlements, whatever the contract says. Businesses should check each arrangement carefully, and workers should not accept a contractor label for what is really a job.

How your tax rate affects the comparison

Because employees and sole trader contractors pay the same personal tax rates, the after-tax difference is usually a bit smaller than the before-tax difference. Each extra dollar a contractor earns is taxed at their marginal rate: 30% from $45,001, 37% from $135,001 and 45% from $190,001 in 2026–27, plus the 2% Medicare levy.

In the default example, the contractor is $10,300 ahead before tax including super, but about $6,250 ahead after tax. Part of the difference goes in tax, and part goes to super. For higher earners in the 37% or 45% bracket, more of each extra dollar goes in tax, so the after-tax gap narrows further. Personal super contributions taxed at 15% in the fund can help contractors keep more of their income, within the concessional cap.

Contract rates across industries

Contracting is common in some fields and rare in others. Information technology, engineering, project management, consulting, design, writing, construction trades and health locums all have large contract markets. Day rates vary widely by skill, experience, location and demand, so use market information from your field rather than general averages.

In some industries, contractors are usually paid by the hour; in others, by the day or by the project. The calculator handles hourly and daily rates. For project fees, divide the fee by the days you expect the project to take, including time for quoting, revisions and admin, to get an equivalent day rate.

Setting your contract rate

The matching day rate from this calculator is a floor, not a target. It is the rate at which you are no better or worse off than an employee, before counting the extra risk and work involved in contracting. Most contractors aim for a rate above this to reward that risk.

Ways to set your rate include:

• Start from the matching rate. Work out what you need to equal a comparable salary, then add a margin for risk, often 10% to 30%.
• Check the market. Ask recruiters, look at advertised contract roles and talk to other contractors in your field.
• Price the value. For project work, think about what the result is worth to the client, not just your time.
• Review regularly. Raise your rates as your experience grows, and at least in line with wage growth.

Remember to quote rates clearly: per hour or per day, before or after GST, and whether super is included. Misunderstandings about these can cost you thousands of dollars a year.

Cash flow and getting paid

Employees are paid regularly, usually weekly, fortnightly or monthly. Contractors invoice for their work and wait to be paid, often 14 to 30 days, and sometimes longer. That means a gap between doing the work and having the money, which can be hard when you first start contracting.

Before you start, build a cash buffer of at least one to three months of expenses. Set clear payment terms in your contract, invoice promptly, and follow up overdue invoices. Keep your tax, GST and super savings in a separate account so they are not spent by accident.

The Australian Government has introduced measures to encourage large businesses to pay small businesses on time, and some industries have payment times reporting. If a client is slow to pay, you can seek help from your state’s small business commissioner.

Insurance for contractors

As an employee, you are covered by your employer’s workers compensation and liability insurance. As a contractor, you usually need to arrange your own. Common types include:

• Professional indemnity insurance, which covers claims that your advice or work caused a client a loss. Many clients require it.
• Public liability insurance, which covers injury or property damage to others while you work.
• Income protection insurance, which replaces part of your income if illness or injury stops you working. Premiums for cover held outside super are generally tax deductible.
• Personal accident and illness cover, an alternative or addition to income protection for some trades.

Insurance costs vary widely with your occupation and cover. Include them in the business costs field to see their effect on the rate you need.

Part-time and casual comparisons

The calculator assumes a full-time role, but you can use it for part-time work. Enter the part-time salary, scale the leave to the days you work, and reduce billable days by changing the gap days. For example, a three-day-a-week role has about 156 weekdays; enter the leave days pro rata and add 104 to the gap days to remove the non-working weekdays.

Casual employees are different again. They do not get paid annual or personal leave, but under most awards they receive a casual loading, usually 25% of the base hourly rate, to make up for it. Compare a casual hourly rate with a contract rate by adding super to the casual rate and remembering the contractor’s business costs and gaps.

Sole trader, company or trust?

Most new contractors start as sole traders, which is simple and cheap. Some later set up a company, often because a client or agency prefers to deal with one, or to limit personal liability.

For contractors whose income is personal services income and who do not pass the personal services business tests, a company or trust usually does not reduce tax, because the PSI rules attribute the income back to you personally. A company also brings extra costs, such as ASIC fees, a separate tax return and director obligations, and you must pay yourself a wage or dividends to access the money.

If you pass the results test or run a genuine business with several clients, a different structure may have benefits. Get advice from a registered tax agent before deciding. This calculator assumes a sole trader.

Getting a home loan as a contractor

Lenders like stable, predictable income. Employees can usually show recent payslips; contractors often need to show one or two years of tax returns, financial statements or BAS. Some lenders will consider contractors with a shorter history if they have a contract in place and a track record in the same field.

If you plan to buy a home in the next year or two, think about the timing of a move to contracting. Some people wait until after their loan is approved before switching. Talk to a mortgage broker who works with contractors about what documents they will need.

Moving back to employment

Many people move between contracting and employment over their careers. When comparing a contract with a job offer, remember the less obvious benefits of employment: paid parental leave from some employers, salary packaging in some sectors, training budgets, career progression and the security of notice and redundancy rights.

Equally, consider what you would give up. Contractors often have more flexibility, a higher rate and more control over their work. The numbers in this calculator are one part of the decision; your circumstances and preferences are the other.

Converting between hourly and daily rates

A standard full-time week in Australia is 38 hours under the National Employment Standards, which is 7.6 hours a day over five days. Many contractors work 8 hours a day, and some contracts specify a different number. The calculator converts an hourly rate to a daily rate by multiplying by the hours a day you enter.

Be careful when comparing hourly rates with salaries. An employee’s hourly rate is usually their salary divided by 1,976 hours (52 weeks × 38 hours), which includes paid leave. A contractor’s hourly rate applies only to hours actually billed. On a $110,000 salary, the employee’s rate is about $55.67 an hour, but the matching contractor rate is about $79.07 an hour at 7.6 hours a day and 210 billable days.

If you are paid for extra hours as a contractor, your yearly income rises; an employee on a salary may not be paid for extra hours unless their award or agreement provides for overtime. Allow for this if you regularly work long days.

Parental leave, illness and other life events

Employees with enough service are entitled to unpaid parental leave under the National Employment Standards, and some employers also pay parental leave. Contractors do not get employer-paid parental leave, but they may be eligible for the Government’s Paid Parental Leave scheme if they meet the work and income tests, which can include self-employed work. Check the current rules with Services Australia before planning a break.

Illness and injury are a bigger financial risk for contractors, because there is no paid sick leave and no workers compensation through an employer. Income protection insurance and a cash buffer are the main protections. Build these into your rate: if you pay for income protection and save for time off, the matching rate in this calculator reflects your true costs.

Major life events are also a good time to rerun the comparison. A new child, a mortgage or a health change may make the security of employment more valuable, or the flexibility of contracting more appealing.

Budgeting on a variable income

Contract income can arrive in uneven amounts, with large payments some months and none in others. A simple approach is to pay yourself a regular “salary” from your business account, set at a level your average income can support, and leave the rest as a buffer. When a contract ends, the buffer keeps your regular pay going until the next one starts.

Keep at least three months of regular pay in the buffer if you can. Review it each quarter alongside your tax savings, and top it up after a strong month rather than lifting your spending. Over time, a well-stocked buffer gives you the freedom to turn down poorly paid work and wait for a better contract, which is one of the real advantages of contracting. It also means a slow month never forces you to dip into the money set aside for tax, GST or super.

Questions to ask before accepting a contract

• Is the rate per hour or per day, and is it before or after GST?
• Does the rate include super, and who pays it?
• How long is the contract, and how much notice can either side give?
• When and how will I be paid, and what are the payment terms?
• What insurance must I hold, and what limits are required?
• Who owns the work I produce, and are there restraints after the contract ends?
• Will I be working under direction like an employee, or in my own business?
• Can I work for other clients at the same time?

The answers affect both your income and whether the arrangement is a genuine contract. Get anything important in writing.

Record keeping for contractors

Contractors must keep records of their income and expenses for five years. Good records make tax time easier and support any deductions you claim. Useful habits include keeping a separate business bank account, recording each invoice and payment, keeping receipts for expenses, and reconciling your accounts each month or quarter.

Cloud accounting software can automate much of this, link to your bank account and prepare BAS. Its cost is a deductible business expense. If you are registered for GST, you must also keep tax invoices for purchases over $82.50 including GST to claim GST credits.

Contractor vs employee checklist

1. Find the matching day rate for the salary you are comparing.
2. Check the contract rate is before GST, and whether it includes super.
3. Estimate realistic billable days, including gaps.
4. Add up your business costs, including insurance and accounting.
5. Compare take-home pay with super set aside.
6. Check you are genuinely a contractor using the ATO decision tool.
7. Plan for tax, GST and a cash buffer before you start.

Glossary

• Day rate: what a contractor charges for a day’s work, usually before GST.
• Billable days: days a contractor is paid for, after leave, holidays and gaps.
• Super guarantee: the minimum super employers must pay, 12% from 1 July 2025.
• Personal services income: income mainly for your personal skills or effort.
• Results test: one of the tests for running a personal services business.
• Sham contracting: wrongly treating an employee as a contractor.
• PAYG instalments: regular payments towards your yearly tax bill.
• National Employment Standards: the minimum entitlements for employees under the Fair Work Act.

A worked example by hand

Here is the calculator’s default example for 2026–27: a $110,000 salary with 4 weeks of annual leave, 10 public holidays and 10 sick days, compared with a $650 contract day rate, 10 days of gaps and $3,000 of business costs.

Employee package: $110,000 + 12% super of $13,200 = $123,200.

Billable days: 260 − 20 − 10 − 10 − 10 = 210.

Contractor revenue: $650 × 210 = $136,500, less $3,000 of costs = $133,500 profit.

Matching day rate: ($123,200 + $3,000) ÷ 210 = $600.95.

Employee tax: $4,020 + 30% of $65,000 = $23,520 income tax, plus a $2,200 Medicare levy, so take-home is $84,280.

Contractor tax: $14,303.57 goes to super (12 ÷ 112 of profit), leaving taxable income of $119,196.43. Tax and Medicare levy come to $28,662.86, so take-home is $90,533.57.

Common contractor rate mistakes

1. Dividing the salary by 260. It ignores leave, super and gaps.
2. Forgetting super. A rate “plus super” and “including super” are very different.
3. Assuming no gaps. Most contractors have some time between contracts.
4. Spending the GST. It belongs to the ATO.
5. Not setting aside tax. A year’s tax bill can be large.
6. Accepting a sham contract. If it looks like a job, you may be an employee.

How we tested this calculator

The calculator uses 260 weekdays a year and does not adjust for the exact number of public holidays in your state or year. Tax assumes the person is an Australian resident with no other income, deductions or offsets apart from the low income tax offset.

Three real Australian examples

All figures come from this calculator’s engine, using 2026–27 tax rates.

Three expert tips

Contractor vs employee FAQs

Definitions and eligibility

Maths and technical rules

State and territory differences

Edge cases and ATO compliance

Related calculators

More tools in Income Tax & Business:

Next steps in other sections:

Editorial transparency and sources

The tax rates, low income tax offset, Medicare levy and super guarantee rate on this page come from the ATO, and the leave entitlements from the Fair Work Ombudsman’s National Employment Standards. They were last checked on 30 October 2026. The calculator simplifies tax by assuming no other income or deductions, and does not include the Medicare levy surcharge, HELP repayments or the small business income tax offset. Read our editorial policy and report errors on our contact page.

General Advice Warning: this calculator and page provide general information for educational purposes only. They are not tax, legal or employment advice. Whether a worker is an employee or a contractor depends on the whole relationship. Speak to a registered tax agent or employment lawyer about your situation. AUFinanceCalculators.com does not hold an Australian Financial Services Licence and is not a registered tax agent. See our full disclaimer.

Official sources

• Australian Taxation Office: Tax rates for Australian residents
• Australian Taxation Office: Employee or independent contractor
• Australian Taxation Office: How much super to pay
• Australian Taxation Office: Personal services income
• Fair Work Ombudsman: Independent contractors
• Fair Work Ombudsman: National Employment Standards