Contractor vs Employee
Find your break-even rate and true take-home comparison
Employee
$120,000
Base salary
$14,400
Employer super
$134,400
Total package
Contractor (ABN / sole trader)
Billable weeks: 43.0
52 weeks − 4wk leave − 5d sick − ~2wk public holidays − 2wk non-billable
Gross income: $172,000
Leave & availability
Contractor costs & super
Break-even contractor rate
To match take-home pay only:
$84/hr
($673/day)
To match take-home + super equivalent:
$99/hr ($793/day)
Based on 43.0 billable weeks, 40 hrs/wk, $5,000 overhead, 12% super
At your current rate ($100/hr)
Contracting puts $15,180 more in your pocket each year
Annual comparison
Contract Rate Explorer
Break-even hourly rates for different billable week scenarios. Adjust your inputs on the left and see how utilisation affects your required rate.
| Billable Weeks | Annual Income | Rate to match salary | Rate to match salary + super |
|---|---|---|---|
| 44 wks | $144,719 | $82/hr | $97/hr |
| 47 wks | $144,719 | $77/hr | $91/hr |
| 50 wks | $144,719 | $72/hr | $85/hr |
Based on 40 hrs/wk, $5,000 annual overhead, 12% super. "Salary + super" column accounts for the 12% SGC your employer contributes on your behalf.
Tax Comparison: Employee vs Contractor
As an Employee
As a Contractor (ABN)
Recommended set-aside: ~25%
Set aside approx. $3,583/month from every invoice into a separate account for quarterly BAS + annual tax lodgement. Your effective tax rate is 23.5% — we recommend rounding up to 25% as a buffer.
Employee vs Contractor — side by side
Advantages of contracting
- +Higher gross income potential
- +Deduct business expenses (phone, equipment, home office)
- +Flexibility — choose your clients and hours
- +Super contributions are tax-deductible (up to $30k concessional cap)
- +Potential income splitting via family trust (Pty Ltd)
- +No cap on earnings — charge what the market bears
Disadvantages of contracting
- −No paid leave — holiday time = zero income
- −No paid sick leave or parental leave
- −No redundancy payout or notice period protection
- −Irregular income — gaps between contracts
- −Must manage own tax (quarterly PAYG instalments)
- −Insurance and compliance costs you pay yourself
Personal Services Income (PSI) rules
If more than 50% of your income comes from your personal skills (common for IT contractors), the ATO's PSI rules may apply. This can limit your ability to split income or claim certain deductions through a Pty Ltd company. Speak with a registered tax agent before setting up a company structure.
What contractor rate equals my salary?
A common rule of thumb is to take your annual salary, divide by 1000, and use that as your hourly rate — so $120,000 salary ≈ $120/hr. But this is a rough guide that ignores your actual tax bracket, super contributions, leave time, and overhead costs.
This calculator uses your exact 2025-26 marginal tax rate, realistic billable weeks (accounting for leave, sick days, public holidays, and bench time), and your actual contractor expenses to give you a precise break-even figure.
Sole trader vs Pty Ltd
Most Australian contractors start as sole traders (ABN only). It's simple — income flows straight to your personal tax return and you claim business expenses as deductions.
A Pty Ltd company pays 25% company tax on profits (base rate entity), which can be advantageous above ~$100k, but adds compliance costs (~$1,500/year ASIC fees + accountant costs) and requires careful management to avoid PSI attribution rules.