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Compare the true financial value of contracting vs employment — including GST, tax, super, leave and PSI rules — not just the headline rate.
Updated: 6 August 2026 · Reviewed by Mohsin Iqbal · 16 min read
ℹ️ This tool provides a financial estimate only — it does not determine your legal employment status. Whether you're a contractor or an employee depends on the ATO and Fair Work multi-factor tests, not on preference or how you're paid. See the sections below, and confirm your position with the ATO or a lawyer if there's any doubt.
Contractor Details
Financial year
Contractor rate
$
Rate is
Billable hours/week
hrs
Billable weeks/year
wks
GST registered?
Business Expenses
Expenses ordinarily deductible
$
Public liability insurance
$
Professional indemnity insurance
$
Income protection
$
Accounting/bookkeeping
$
Software/subscriptions
$
Equipment/vehicle
$
These sum into "Expenses ordinarily deductible" above when you edit any field here.
Expenses potentially restricted by PSI
$
Expenses are assumed GST-inclusive if registered, so GST credits are estimated automatically.
PSI rules apply?
If PSI applies, only the "ordinarily deductible" category is allowed — this calculator doesn't determine which specific expenses qualify.
Superannuation arrangement
Private hospital cover (PHI)?
HECS/HELP debt?
Equivalent employee salary
$
Comparison
Total Value Difference
—
Component
Contractor
Employee
This calculator assumes, unless you change the relevant input:
46 billable weeks a year for the contractor (adjustable above)
No payroll tax modelled for either side
No workers compensation premiums modelled for the contractor
No company or trust tax structuring — figures assume income taxed in your personal hands
HELP repayments use the ATO's current marginal formula (15%/17%/10% cap) introduced for 2025–26 — this is the official method, not a simplification of the old lookup table, though very small cents-level rounding differences from ATO withholding schedules are possible
No Division 293 additional super tax for high-income earners
No Fringe Benefits Tax (FBT) modelling
No spouse income adjustments
Medicare Levy Surcharge uses income and private hospital cover status only — family status and dependent children (which affect the real MLS family threshold) aren't modelled yet
Estimates only — not financial, tax or legal advice. Confirm your GST, PSI and employment classification position with the ATO or a registered tax agent.
⏱️ Last reviewed: 6 August 2026 · Written and reviewed by Mohsin Iqbal under our editorial policy and calculation methodology. This is a financial estimate, not a legal employment determination — verify your classification and GST/PSI position with the ATO or a registered tax agent.
📖 Approx. 16 min read⚖️ ATO & Fair Work aligned · 2026–27 tax🔄 Updated 6 August 2026
Contractors often have more cash-in-hand than an equivalent employee, but less total value once guaranteed super and leave are counted.
If GST-registered, roughly 1/11th of your invoiced rate belongs to the ATO, not you — a surprisingly common oversight in contractor rate-setting.
Personal Services Income (PSI) rules can sharply limit which business deductions you're allowed to claim, if most of your income comes from your own labour for one client.
Employment status is a legal question, not a financial preference — the ATO and Fair Work use a multi-factor test, and getting it wrong (sham contracting) carries real penalties.
A common rough guide is that a contractor rate needs to be roughly 20-30% above the equivalent salary to match total value — but this varies a lot by situation, which is why a calculator beats a flat rule of thumb.
Quick Answer
Contracting usually gives you more cash-in-hand right now. That's because employer super isn't automatically included. The real question is whether that extra cash covers what you'd need to self-fund for the same retirement outcome.
Take a $95/hour ex-GST contract (40 hours, 46 weeks, self-funded super) versus a $135,000 salary. The contractor has about $19,842 more cash-in-hand each year. Once you count the employee's guaranteed super, the contractor is still ahead — but only by about $3,642.
Your own numbers can shift this a lot: GST treatment, PSI status and your super arrangement. Use the calculator above for an exact comparison.
Contractor vs Employee — What's the Real Difference?
An employee works inside someone else's business, under their direction and control. They get super, leave and workers' compensation cover automatically. An independent contractor runs their own business. They're engaged to produce a result, not just their time, and they handle their own tax, super, insurance and business expenses.
This distinction is a legal one, not a personal choice. It's decided by the real working relationship — not by what a contract calls you, and not by whether you have an ABN.
The ATO's Employee/Contractor Test
There's no single test that decides your status. Different rules can apply for tax, super and Fair Work purposes. Which test applies depends on your specific situation. For tax purposes, the ATO and courts weigh several factors together:
Control: Does the business direct how, when and where the work is done, or does the worker have genuine autonomy?
Ability to delegate: Can the worker send someone else to do the work, or must they personally perform it?
Tools and equipment: Who provides them — the worker or the business?
Commercial risk: Does the worker bear the risk of profit or loss, including fixing defects at their own cost?
Integration: Is the worker presented as part of the business, or operating independently of it?
Since 26 August 2024, Fair Work matters use a "whole of relationship" test. This looks at how the work really happens day to day, not just what the contract says. Contractors earning above the "contractor high income threshold" ($190,100 from 1 July 2026, indexed each year) can opt out of this test. They can choose a contract-focused approach instead, by giving written notice.
Your classification can depend on which legal test applies, what your contract says, and how the relationship actually works. No single factor decides it on its own.
Side-by-Side Comparison
Factor
Employee
Contractor
Tax
Employer withholds PAYG
Manages own tax and (if applicable) PAYG instalments
Super
Employer pays 12% SG
Generally self-managed, with some labour-hire exceptions
Leave
Annual, personal/sick and long service leave (NES)
None — must be factored into the rate
Insurance
Employer provides workers compensation
Arranges own insurance (public liability, income protection)
GST
Not applicable
Required to register once turnover reaches $75,000
ABN
Not required for the role
Required to invoice for business activities
Job security
Notice periods, unfair dismissal protections
Contract-dependent, generally less protection
What Rate Should a Contractor Charge to Match a Salary?
There's no single loading percentage that works for everyone. It depends on your expenses, GST status, whether PSI rules apply, your super arrangement, and how many weeks you actually bill each year.
The calculator above solves this for you. Enter an equivalent salary, and it works out the contractor hourly rate needed to match it — after tax, super and expenses. As a rough starting point, a 20-30% loading over an equivalent salary is a common benchmark. Treat that as a starting point for negotiation, not an exact figure. The calculator's own result will be more accurate for your situation.
Superannuation — Do Contractors Get It?
In most cases, contractors pay their own super. There's one key exception, though. If a contract is mainly for labour — meaning you're paid mainly for your personal effort, not to deliver a finished result — the business that hired you may still have to pay Superannuation Guarantee. This applies regardless of your ABN or contractor status.
This is called the "extended definition" of employee for super purposes. It catches many arrangements that look like contracting on paper. Use the "Superannuation arrangement" selector in the calculator above to model your case: self-funded, paid on top by the engager, or already built into your quoted rate. Each of these gives a different result. See our Super Contributions Calculator for more on how super contributions work.
Leave Entitlements — What Contractors Miss Out On
Employees get four weeks of annual leave, personal/carer's (sick) leave, and eventually long service leave under the National Employment Standards. All of it is paid and guaranteed. Contractors get none of this automatically — any equivalent has to come from money they set aside themselves. This is real, guaranteed value for employees. It's easy to underweight when you compare a contract rate to a salary at face value.
Personal Services Income (PSI) Rules
If most of your income is a reward for your personal skills or effort — not income from a real business with its own goodwill, equipment or multiple clients — it may count as Personal Services Income (PSI).
If PSI applies and you don't pass the "results test" or other self-assessment tests, two things happen. Your allowable deductions are cut back to roughly what an employee doing similar work could claim. And you may need to declare the income as your own, even if it was earned through a company or trust. Toggle "PSI rules apply?" in the calculator above to see the effect on your expenses and net position.
GST and ABN Requirements for Contractors
Contractors generally need an ABN to invoice for business work. GST registration is required once your GST turnover reaches $75,000 in a 12-month period — common for most full-time contractors.
If you're GST-registered, roughly 1/11th of your GST-inclusive invoiced amount belongs to the ATO, not you. The calculator above accounts for this automatically. Treating your full invoiced rate as personal income would overstate your real earnings. See our GST Calculator for a dedicated breakdown.
Sham Contracting — Risks and Penalties
⚠️ The Fair Work Act bans "sham contracting" — hiring someone as a contractor when the real relationship is employment, usually to avoid paying leave, super and other entitlements. The Fair Work Ombudsman and ATO actively investigate misclassification. Penalties for businesses can include back-paying entitlements and super plus interest, administrative charges, and significant fines. This is a real legal risk, not just a technicality.
Worked Examples (2026–27)
Scenario
Contractor Cash / Total Value
Employee Cash-in-Hand
Employee Total Value
$95/hr ex-GST, GST-registered, self-funded super, vs $135,000 salary
$121,122
$101,280
$117,480
Same scenario, with PSI applying
$120,058
$101,280
$117,480
In this example, the contractor's total value is slightly higher than the employee's. But the gap is much smaller than a simple cash comparison suggests. Both the employee's guaranteed super and the contractor's tax and GST obligations matter. Use the calculator above with your own rate, hours, expenses, GST and super arrangement for figures specific to your situation.
Common Mistakes
Treating your full invoiced rate as income if GST-registered. Roughly 1/11th of a GST-inclusive rate belongs to the ATO, not you.
Comparing cash-in-hand only, without total value. A contractor can have more cash right now and still be financially behind an equivalent employee once guaranteed super and leave are counted.
Assuming PSI doesn't apply to you. If most of your income comes from your personal effort for one client, PSI rules can catch you even with a company structure.
Believing an ABN and written contract settle your employment status. Courts and the ATO look at the real working relationship, not the label used.
Not budgeting for your own super and leave. Without deliberately setting this aside, "extra" contractor cash-in-hand can quietly become a long-term shortfall.
Frequently Asked Questions
An employee works within and under the direction of someone else's business and receives automatic entitlements like super and leave. A contractor runs their own business, is typically engaged to deliver a result, and manages their own tax, super and insurance.
It depends on your priorities — contracting often means more cash-in-hand and flexibility, but less job security and no automatic super or leave. Use the calculator above to see the actual financial trade-off for your specific numbers.
Not inherently — contractors pay the same income tax rates as employees on their taxable income. The difference is contractors manage their own tax (often via PAYG instalments) rather than having it withheld automatically, and may have GST obligations employees don't.
Potentially yes, for genuine business expenses. But if Personal Services Income (PSI) rules apply, deductions are cut back to roughly what an employee could claim — this shrinks the advantage a lot.
Generally no — contractors are responsible for their own superannuation. An exception applies if the contract is mainly for labour, where the engaging business may still owe Superannuation Guarantee regardless of ABN status.
The contractor is responsible for their own income tax, typically paid via quarterly PAYG instalments to the ATO, rather than having tax withheld automatically by an employer as with PAYG withholding for employees.
Yes, an employee can hold an ABN for other business activities, but having an ABN doesn't itself determine employment status for a specific role — that depends on the actual working relationship, assessed against the multi-factor test.
Sham contracting is when a business engages someone as a contractor despite the real relationship being one of employment, typically to avoid paying entitlements. It's prohibited under the Fair Work Act and can result in significant penalties for the business.
Start with gross invoiced revenue, remove GST if registered (roughly 1/11th of a GST-inclusive rate), subtract deductible business expenses, then calculate income tax on what remains — the calculator above automates this fully.
Enter your target equivalent salary into the calculator above — it estimates the contractor hourly rate required to produce an equivalent annual financial value after tax, super and expenses, rather than relying on a generic rule of thumb.
GST-registered contractors can claim GST credits on GST-inclusive business purchases, offsetting what they owe on GST collected from clients. They must also charge GST on their invoices once registered.
You must register once your GST turnover reaches $75,000 in a 12-month period. Below that, registration is optional — worth considering if your clients are GST-registered businesses who can claim the GST back anyway.
PAYG employees have tax withheld automatically and receive guaranteed super and leave. Contractors manage their own tax and typically have neither automatic super nor leave, generally in exchange for a higher headline rate and more autonomy.
Income that's mainly a reward for a person's own skills or effort, rather than from a genuine business structure. If PSI applies and you don't pass the self-assessment tests, your deductions are cut back a lot and the income may need to be declared as your own.
If a business is found to have misclassified an employee as a contractor, it can be required to back-pay entitlements including leave and superannuation (plus interest), and may face significant fines under sham contracting provisions.
Yes — you can be an employee in one role and a genuine independent contractor in a separate, unrelated engagement. Each relationship is assessed on its own facts against the multi-factor test.
No — genuine independent contractors aren't entitled to paid annual leave under the National Employment Standards. Any equivalent provision needs to come from their own rate and savings.
No — contractors don't receive paid personal/sick leave. If they're unable to work, they generally don't get paid for that period, unlike employees.
No — redundancy pay is an employee entitlement under the National Employment Standards. A contractor's engagement simply ends according to the terms of their contract, generally without a redundancy payment.
A weighing of several factors together — control over the work, ability to delegate, who provides tools and equipment, who bears commercial risk, and how integrated the worker is into the business — with no single factor being decisive on its own.
Generally yes, to invoice for business activities without having tax withheld at the top rate. An ABN alone doesn't determine your employment status, but it's a practical requirement for operating as a contractor.
It depends entirely on the equivalent salary, your expenses, and your GST/PSI status — there's no universal answer. Enter your specific numbers into the calculator above for a direct comparison.
Commonly public liability insurance and, for many professions, professional indemnity insurance — unlike employees, contractors aren't automatically covered by an employer's workers compensation policy.
Some contracts specify a rate "inclusive of superannuation" if SG applies to the arrangement (such as labour-hire situations) — always clarify explicitly with the engaging business whether super is included in or additional to the quoted rate.
This calculator uses official ATO-published tax brackets, LITO and Medicare levy rules for 2026–27 and 2025–26, and models GST and PSI deduction limits using standard rules. It's a financial planning estimate, not a legal employment determination — confirm your classification and tax position with the ATO or a registered tax agent.
Contracting and employment involve a real financial trade-off, not just a different headline number. Contractors often have more cash-in-hand but less total guaranteed value, once super and leave are properly counted. GST and PSI rules can change the picture too.
Employment classification is a legal question, decided by the actual working relationship — and getting it wrong carries real penalties. Use the calculator above with your own numbers for an accurate, side-by-side comparison.