Contractor vs Employee Calculator
Compare take-home pay as a PAYG employee vs ABN contractor. Includes tax, GST, deductions, super, break-even rate, and hidden costs for FY 2025-26 and FY 2024-25.
Compare Employment Types
Contractor earns more by
$26,172/year
$2,181/month after tax (after self-funded super)
Break-even rate: $67/hr or $535/day
The minimum contractor rate to match the employee's $77,212 net income
Side-by-Side Comparison
| Component | Employee | Contractor |
|---|---|---|
| Gross Income | $100,000 | $180,000 |
| Business Deductions | — | -$18,000 |
| Taxable Income | $100,000 | $162,000 |
| Income Tax | -$20,788 | -$41,277 |
| Medicare Levy | -$2,000 | -$3,240 |
| Total Tax | -$22,788 | -$44,517 |
| Superannuation | $12,000(employer pays) | -$14,098(self-funded) |
| Effective Tax Rate | 22.8% | 24.7% |
| Net Take-Home Pay | $77,212 | $103,385 |
| Per month | $6,434 | $8,615 |
Hidden Costs of Contracting
These costs reduce the contractor's effective advantage. Estimated total: $44,500/year
| Cost | Employee | Contractor | Est. Cost |
|---|---|---|---|
| Annual leave (4 weeks) | 4 weeks paid | Unpaid — you don't earn | $15,000 |
| Sick/personal leave (10 days) | 10 days paid | Unpaid — you don't earn | $7,500 |
| Public holidays (~8 days) | Paid | Unpaid — you don't earn | $6,000 |
| Superannuation | Employer pays $12,000/yr | Self-funded (if any) | $12,000 |
| Workers comp insurance | Employer pays | Self-funded (~$500–$2,000/yr) | $1,000 |
| Income protection insurance | Often included in super | Self-funded (~$1,000–$3,000/yr) | $1,500 |
| GST/BAS admin | N/A | Quarterly BAS, bookkeeping | $1,500 |
| Total Hidden Costs | $44,500/yr | ||
After factoring in hidden costs, the contractor effectively earns $18,328 less per year than the employee.
GST is a pass-through
You collect $18,000 GST on your invoices and remit $17,640 to the ATO (after input tax credits). GST does not affect your taxable income or net income — it's money you hold temporarily on behalf of the government.
Contractor vs Employee: Which Pays More After Tax?
How it works
This calculator runs two parallel tax computations — one for a PAYG employee and one for an ABN sole-trader contractor — then compares the results side by side.
Employee side: Takes the annual salary, calculates income tax using ATO progressive brackets, adds Medicare levy (and MLS if no private health), deducts HECS/HELP if applicable, and derives net take-home pay. Superannuation is shown as an employer-paid benefit on top of salary.
Contractor side: Converts the hourly or daily rate into annual gross income based on your billable days and weeks. Subtracts business deductions (as a percentage of gross), then runs the resulting taxable income through the same tax engine. GST is calculated separately as a pass-through — collected on invoices and remitted to the ATO, with input tax credits on deductible expenses. Self-funded super is modelled as a post-tax set-aside.
Break-even rate: Uses binary search to find the contractor rate where net income exactly matches the employee's take-home pay. This gives you the minimum rate you need to charge to be no worse off as a contractor — before accounting for hidden costs like leave and insurance.
All calculations use FY 2025-26 and FY 2024-25 ATO rates, including the marginal HECS repayment system introduced in FY 2025-26.
When to use this calculator
- You've been offered a contract role and want to know if the daily rate is worth leaving permanent employment
- You're a permanent employee considering going independent and need to set your rate
- You're negotiating a contract extension and want to ensure your rate keeps pace with what you'd earn as an employee
- You're an employer converting a role from permanent to contract and need to calculate an equivalent rate
- You want to understand the true cost difference between the two arrangements, including hidden costs like leave, super, and insurance
- You're a freelancer deciding whether to accept a permanent offer and want to compare apples to apples
Key concepts
- PAYG employee vs ABN contractor
- A PAYG (Pay As You Go) employee has tax withheld by their employer, receives paid leave, employer-funded super, and employment protections. An ABN contractor (sole trader) invoices clients directly, manages their own tax, super, insurance, and leave — but can charge higher rates and claim business deductions. The legal distinction matters for tax, superannuation, and employment law.
- GST registration and BAS
- Contractors with annual turnover above $75,000 must register for GST. You add 10% to your invoices, collect it from clients, then remit the net amount to the ATO quarterly via a Business Activity Statement (BAS). You can claim GST credits on business purchases. GST is not income — it's a pass-through that increases your invoice amount but not your taxable income.
- Business deductions
- As a contractor, you can claim work-related expenses against your income: home office, equipment, software, professional development, travel, phone/internet, accounting fees, and insurance premiums. These reduce your taxable income and therefore your tax bill. Employees can also claim some deductions, but contractors typically have a wider range of claimable expenses.
- Break-even rate
- The minimum contractor rate needed to match the employee's after-tax take-home pay. It's always higher than you'd expect because contractors lose the benefit of employer-funded super, paid leave, and other entitlements. A common rule of thumb is to add 30–50% to the equivalent salary's hourly rate, but this calculator gives you the exact figure for your situation.
- Hidden costs of contracting
- Beyond the tax comparison, contractors bear costs that employees don't: no paid annual leave (4 weeks), no paid sick leave (10 days), no paid public holidays (~8 days), self-funded super, workers comp and income protection insurance, and accounting/bookkeeping for BAS and tax returns. These can add $30,000–$60,000+ per year in equivalent value depending on your rate.
Worked example — "$100k salary vs $750/day contract"
Marcus is a software developer in Melbourne. He earns $100,000/year as a permanent employee and has been offered a contract at $750/day. He has a HECS debt and private health insurance.
Employee ($100,000/year, FY 2025-26, resident, HECS, PHI):
| Component | Annual |
|---|---|
| Gross salary | $100,000 |
| Income tax | −$22,167 |
| Medicare levy (2%) | −$2,000 |
| HECS repayment | −$5,500 |
| Net take-home | $70,333 |
| Super (employer pays) | $12,000 |
Contractor ($750/day, 5 days/week, 48 weeks, 10% deductions, 12% self-super):
| Component | Annual |
|---|---|
| Gross income | $180,000 |
| Business deductions (10%) | −$18,000 |
| Taxable income | $162,000 |
| Income tax | −$43,567 |
| Medicare levy | −$3,240 |
| HECS repayment | −$14,580 |
| After-tax income | $100,613 |
| Self-funded super (12%) | −$12,074 |
| Net take-home | $88,540 |
The verdict:
- As a contractor, Marcus takes home $18,207 more per year ($1,517/month)
- But hidden costs (lost leave, self-funded insurance, admin) are estimated at ~$50,000+
- After hidden costs, the employee arrangement is actually more valuable overall
- The break-even daily rate is approximately $585/day — below that, the employee role pays more
- If Marcus values flexibility and can fill all 48 weeks, the $750/day rate is worth it financially, but the margin is thinner than the headline $18k suggests
Contractor vs Employee FAQ
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