Contractor vs Employee Cost Calculator — Australia 2026-27
Weighing up contracting versus permanent? Compare take-home pay.
Compare the true Australian all-in cost of a contractor versus an employee. Includes superannuation, leave, payroll tax, workers compensation, agency margin, and misclassification risk.
Australia Contractor vs Employee Notes
Australian hiring decisions often turn on super, leave entitlements, payroll tax thresholds, workers compensation, and the risk of sham contracting if the arrangement looks like employment in practice.
This version is tailored to Australian employer cost planning, where the day rate alone rarely captures the full compliance and on-cost picture.
Australian version note: this contractor vs employee keeps the calculation anchored to AUD amounts, local product names, Australian tax language, and the way banks, employers, agencies, or advisers usually describe the inputs.
Local cues stay visible where they matter: ATO, PAYG, superannuation, Medicare levy, stamp duty, kilometres, comparison rate, APRA, Centrelink, GST, and Australian-dollar results are not rewritten into overseas vocabulary.
Use the output as an Australian estimate first, then sanity-check it against local quotes, lender criteria, government thresholds, state rules, or professional advice before relying on the number.
Estimates only. 2026-27 ATO rates.
Select the topic most relevant to your situation.
The break-even daily rate is the contractor rate at which total costs are equal to the total cost of employing the equivalent employee. Above this rate, the employee is cheaper. Below it, the contractor is cheaper.
Break-even = (salary + super + workers’ comp + leave loading + payroll tax) ÷ working days. For a $120k salary with 12% super and typical on-costs, this is approximately $625–$670/day. Contractor rates above this make the employee cheaper.
The minimum viable contractor rate is 115% of the break-even rate — the level at which a contractor earns meaningfully more than the equivalent employee after accounting for their own super, insurance, and gap weeks. Below break-even, the contractor arrangement likely signals sham contracting.
It does not model redundancy (employees have statutory entitlements contractors do not), training costs, management overhead, or the value of workforce flexibility. These are real factors that often justify a contractor premium above pure break-even.
On-costs are the additional employer costs beyond base salary. In Australia, the minimum mandatory on-costs are superannuation (12%), workers’ compensation, and leave loading. Payroll tax adds a further cost above state thresholds.
The superannuation guarantee rate is 12% for 2026-27 (it reached the legislated maximum of 12% on 1 July 2025). Super is payable on ordinary time earnings and must be paid quarterly. Late or unpaid super attracts the Superannuation Guarantee Charge (SGC) plus penalties.
Payroll tax is a state tax on wages above a threshold. NSW: 5.45% above $1.2M. VIC: 4.85% above $1M. QLD: 4.75% above $1.3M. WA: 5.5% above $1M. Thresholds apply to total wages bill — not per employee. Enter your total wages bill in Detailed mode for an accurate calculation.
Workers’ comp rates vary by state and industry. Typical office roles: 1–1.5%. Trades and construction: 3–5%. High-risk industries: up to 10%+. The rate is set by your state insurer and applied to the wages bill. Contractors are generally not covered under the employer’s policy.
The Closing Loopholes Act 2024 significantly increased penalties for sham contracting and misclassification. Businesses that misclassify employees as contractors face back-pay of all entitlements plus civil penalties.
Sham contracting occurs when an employer engages a worker as a contractor when they are legally an employee. Key indicators: the worker cannot subcontract, works exclusively for one business, follows the business’s direction and systems, and is economically dependent on that business.
Under the Closing Loopholes Act amendments, civil penalties for sham contracting can reach $4.7M for corporations per serious contravention. Back-pay obligations include all entitlements from day one: annual leave, personal leave, super, and overtime. The FWC can also order conversion to employment.
Genuine contractors have: an ABN, multiple clients, control over how work is performed, ability to subcontract, and supply their own tools and equipment. Long-term single-client arrangements, exclusive engagement, and direction over work methods all increase misclassification risk. Review at least annually.
Whether to engage a contractor or employee depends on more than cost. Flexibility, skills availability, headcount constraints, and risk tolerance all factor in.
Short-term projects, specialist skills not available in-house, surge capacity, roles with clear deliverables, or situations where headcount cannot be increased. The premium over the break-even rate is the cost of flexibility and speed.
Ongoing operational roles, roles requiring institutional knowledge, customer-facing roles requiring consistent culture, and any situation where the work is continuous and direction-dependent. The employee is almost always cheaper for permanent, ongoing roles.
Many businesses maintain a core of permanent employees supplemented by contractor capacity for peaks and specialist projects. The key is ensuring the contractor arrangements are genuinely different in structure from the employment arrangements — same role, different label is not compliant.
Methodology — on-costs, break-even, and minimum viable rate
Break-even formula
Break-even daily rate = (salary + super + workers’ comp + leave loading + payroll tax) ÷ working days per year. This is the contractor rate at which total costs are equal to total employment cost. Above this rate, the employee is cheaper on a pure cost basis.
On-cost components 2026-27
| Component | Rate / Note |
|---|---|
| Superannuation guarantee | 12% of ordinary time earnings (reached 12% on 1 July 2025) |
| Annual leave loading | 17.5% on 4 weeks leave = ~1.35% of salary |
| Workers’ compensation | 1–3% typical (varies by state and industry) |
| Payroll tax (if above threshold) | 4.30–6.85% depending on state |
Super, workers’ comp, leave loading — what each adds to your wage bill
| Salary | Total cost (approx. with all on-costs) |
|---|---|
| $60,000 | ~$69,000–$75,000 (15–25% loading) |
| $80,000 | ~$92,000–$100,000 |
| $100,000 | ~$115,000–$125,000 |
| $120,000 | ~$138,000–$150,000 |
| $150,000 | ~$173,000–$190,000 |
| $200,000 | ~$230,000–$250,000+ |
State-by-state payroll tax thresholds and rates
| State | Threshold (annual wages bill) |
|---|---|
| NSW | $1,200,000 — 5.45% on excess |
| VIC | $1,000,000 — 4.85% on excess |
| QLD | $1,300,000 — 4.75% on excess |
| WA | $1,000,000 — 5.50% on excess |
| SA | $1,500,000 — 4.85% on excess |
| TAS | $1,250,000 — 4.30% on excess |
| ACT | $2,000,000 — 6.85% on excess |
| NT | $1,500,000 — 5.50% on excess |
Sham contracting penalties, indicators, and how to protect your business
Sham contracting penalties (Closing Loopholes Act)
| Contravention type | Maximum penalty |
|---|---|
| Standard provision | $93,900 (individual) / $469,500 (body corporate) |
| Serious / deliberate (Closing Loopholes Act) | Up to $4.7M (body corporate) |
Key misclassification indicators
- Worker cannot subcontract or delegate work
- Worker is paid per hour/day rather than by result
- Business supplies tools, equipment, or workspace
- Worker works exclusively or predominantly for one business
- Business sets hours, location, and method of work
- Engagement is open-ended or repeatedly renewed for the same role
❓ Frequently asked Frequently asked questions
How much does an employee actually cost vs their salary?
An employee typically costs 14–25% more than their base salary after superannuation (12%), workers’ compensation (1–3%), and leave loading (~1.5%). If your wages bill exceeds the state payroll tax threshold, add a further 4.3–6.85%. For a $100,000 salary, total cost is approximately $115,000–$125,000.
What is the break-even daily rate for a contractor?
The break-even rate is total annual employee cost divided by working days. For a $120,000 salary with standard on-costs (no payroll tax), this is approximately $625–$670/day at 220 working days. Contractor rates above this make the employee cheaper on a pure cost basis.
What are the payroll tax thresholds in Australia for 2026-27?
Thresholds vary by state: NSW $1.2M (5.45%), VIC $1M (4.85%), QLD $1.3M (4.75%), WA $1M (5.5%), SA $1.5M (4.85%), TAS $1.25M (4.3%), ACT $2M (6.85%), NT $1.5M (5.5%). The threshold applies to your total wages bill across all employees, not per person.
What are the risks of misclassifying an employee as a contractor?
Under the Closing Loopholes Act 2024, serious misclassification can attract penalties up to $4.7M for corporations, plus back-payment of all employee entitlements from day one including annual leave, personal leave, super, and overtime. The Fair Work Commission can also order ongoing employment.
When is it cheaper to use a contractor vs an employee?
A contractor is cheaper on a daily rate basis only if their rate is below the break-even rate (total employee cost ÷ working days). This is rarely the case for specialist roles — contractors typically cost more per day but provide flexibility, speed, and skills on demand that can justify the premium for project-based or short-term work.
Where these figures come from
Business figures on this page are drawn from the Australian Taxation Office (business tax, GST, PAYG), Business.gov.au (the federal business registration hub), Fair Work (employer obligations), and ASIC (company and director rules).
- Company tax rate (25% / 30%) — ATO — Company tax rates.
- GST rules (10%) — ATO — GST.
- PAYG withholding & employer obligations — ATO — PAYG withholding.
- Business registration (ABN/ACN) — Business.gov.au.
- Employer pay & award obligations — Fair Work Ombudsman.
- Company & director rules — ASIC — Companies.
Last checked: July 2026. Rates and thresholds are reviewed against the source of record each November, when annual adjustments for the following tax year are published.