Australia Contractor vs Employee Calculator

It's not what the contract says, it's how the work actually happens. The ATO uses multiple tests: control over how work is done, ability to delegate, payment by result vs hours, who provides tools, who bears commercial risk, integration into the business. A real contractor decides their own methods, has their own ABN, can subcontract, and bears profit/loss risk. A 'contractor' who works set hours under direction is often actually an employee misclassified.

Misclassification is significant - 'sham contracting' carries penalties up to $86,000 per breach for employers and back-payment of all employee entitlements. The ATO and Fair Work both pursue these cases. If you're not sure, the ATO's Employee/Contractor decision tool gives a structured assessment.

Employees: PAYG withheld at source, super paid by employer (11.5% of OTE in 2024-25), workers' comp covered, leave entitlements (4 weeks annual + 10 days sick + parental + long service after 7-10 years), notice and redundancy if let go.

Contractors: invoice for services, charge GST if turnover above $75,000, manage own tax via quarterly BAS lodgments, pay own super (or none), no leave, no redundancy, can be terminated at contract end. The trade-off is contractors typically charge 25-40% above the equivalent employee hourly rate to compensate.

An employee on $90,000 salary plus 11.5% super costs the employer roughly $113,500 once you add super, leave loading, payroll tax, and workers' comp. A contractor charging an equivalent rate would need to invoice around $130,000-150,000/year (around $80-100/hour for full-time) to net comparable take-home after their own super, leave, slow weeks, and overheads.

Many people switch from employee to contractor for higher headline rate without doing the math. The 'extra $30k' often disappears once they account for super, missing leave, GST collection complexity, accountant fees ($1,500-3,000/year), and gaps between contracts. Genuine contracting works best for genuinely transferable skills with multiple clients.

If 80%+ of your contracting income comes from one client and you don't pass certain tests (results test, unrelated clients test, employment test, business premises test), you fall under 'Personal Services Income' (PSI) rules. PSI essentially treats your income like employment for tax purposes - you can't split income with a partner, can't claim super deductions for higher contributions, and most expenses must directly relate to producing the income.

PSI rules catch many sole-trader contractors who think they're running a business but are functionally working for one client. The results-based test (paid for outcomes, not time) is the main exception that lets PSI apply differently. Talk to an accountant if your situation is borderline. Use the [Australia Income Tax Calculator](/australia-income-tax-calculator) for the personal tax view.