True cost: employee vs contractor.
Cheaper for the business
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Total employee cost
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Contractor cost
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Why a salary is never the real cost of an employee
Ask a business owner what an employee costs and they will usually quote the salary. The salary is only the start. On top of it sit the 12 percent superannuation guarantee, payroll tax in most states once the wage bill passes a threshold, workers compensation insurance, and the value of paid annual and personal leave. Added together these typically lift the true cost 25 to 35 percent above base salary. A contractor's invoice can look expensive by the hour, but it is a single number with none of those add-ons. This calculator builds up the genuine employer cost and sets it against a contractor invoice so you compare like with like.
The on-costs the tool layers on
From the base salary the calculator adds super at 12 percent, then applies payroll tax to the salary-plus-super wage figure, then adds workers compensation as a percentage of salary. Payroll tax is the one to watch because it is a state tax, not federal, and both the rate and the tax-free threshold differ by state. New South Wales, Victoria, Queensland and the rest each set their own, and a small business below the threshold pays none at all. Enter the rate that applies in your state, and set it to zero if your total wages sit under the threshold.
A $100,000 hire versus a $140,000 contractor
Run the defaults. A $100,000 base salary attracts $12,000 of super, lifting the wage to $112,000. Payroll tax at 5 percent on that wage is $5,600, and workers compensation at 1.5 percent of salary is $1,500. The total cost of the employee is $119,100. A contractor invoicing $140,000 a year therefore costs the business $20,900 more than the employee, before you weigh up flexibility, leave coverage and control.
| Cost component | Amount |
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The chart stacks the employee cost so you can see how each on-cost builds on the salary, with the contractor line drawn for comparison.
Cost is not the only test, and misclassification bites
The cheaper option on paper is not always the right hire, and one rule overrides the arithmetic entirely. You cannot label a worker a contractor just to dodge super and payroll tax if they function like an employee. The ATO and the courts look at the substance of the arrangement, the degree of control, whether the person runs their own business, who supplies the tools, and whether they can delegate the work. Sham contracting carries penalties, and a misclassified contractor can later claim unpaid super and leave. Treat this tool as a cost comparison for two genuinely available options, not a licence to relabel staff.
The hidden cost neither column shows fully
Leave is the quiet variable. A full-time employee typically takes four weeks of annual leave plus personal leave, so you pay for roughly 48 working weeks of output, not 52. A contractor, by contrast, only invoices for time worked and covers their own downtime. If you need guaranteed coverage every week of the year, the contractor's apparent premium partly buys that continuity. Factor your real need for availability into the decision, not just the dollar totals.
Common questions
Do I pay super for a contractor?
Sometimes yes. If a contractor is engaged wholly or principally for their labour under a contract, super guarantee can still apply even though they invoice you and hold an ABN. Many businesses are caught out by this, so check the labour-only rules before assuming a contractor carries no super obligation.
Why does payroll tax vary so much between states?
Payroll tax is levied by each state and territory, so the rate, the tax-free threshold and the grouping rules all differ. A business with the same wage bill can pay payroll tax in one state and none in another. If you operate across borders, wages may be grouped and apportioned, which is why the rate in this tool is an input rather than a fixed figure.
Is the 12 percent super rate going to keep rising?
The super guarantee reached 12 percent on 1 July 2025 and that is the legislated maximum under the current schedule, so for 2025-26 the figure in this tool is 12 percent. Any future change would come through new legislation, so confirm the rate for the year you are budgeting.