Employee vs Contractor Cost Calculator

Why the day rates never compare cleanly

A contractor's day rate almost always looks more expensive than an employee's salary divided by working days — until you load the employee's number with everything else you actually pay. The point of this exercise is to compare fully loaded cost per productive day, not headline pay. And before cost enters it at all: whether someone is an employee or contractor is a legal question decided by the substance of the arrangement, not by what you'd prefer to pay. Get the classification right first (the ATO and Fair Work Ombudsman both publish guidance), then compare costs.

Building the employee's true cost

Start with base salary, then add each on-cost line:

• Superannuation guarantee — at the ATO's current rate, on ordinary time earnings.
• Paid leave — annual leave, personal leave and public holidays are days you pay for without output. Any applicable leave loading under the award adds to this.
• Workers compensation premium — set by your state scheme and your industry classification.
• Payroll tax — if your total wages exceed your state's current threshold, each hire carries a marginal payroll tax cost.
• Overheads that scale with headcount — equipment, software seats, insurance, training, and recruitment cost amortised over expected tenure.

Sum those and you have annual loaded cost. As a structure: loaded cost ÷ productive days = true daily cost, where productive days are working days minus leave, public holidays and a realistic allowance for sick days. The loading above base salary is substantial — which is exactly why the naive comparison misleads.

Building the contractor's true cost

The contractor side is simpler but not just the invoice:

• The rate itself — day or hourly rate times expected days.
• Super, sometimes — contractors paid mainly for their labour can be entitled to super guarantee even with an ABN. Check the ATO tests; this surprises a lot of engagers.
• Payroll tax, sometimes — several states deem certain contractor payments to be taxable wages.
• GST handling — usually cash-flow neutral if you're registered, but it affects the invoice total.
• Engagement overhead — sourcing, contract admin, onboarding each new contractor, and re-briefing when they change.

Running the comparison

1. Normalise to the same unit

Express both options as cost per productive day (or per hour) over the same horizon — say twelve months.

2. Adjust for what money can't see

Employees accumulate context, can be directed flexibly, and build capability that stays. Contractors bring speed, specialist depth and an easy exit. Score the role honestly: is this permanent core work or a bounded project?

3. Stress-test the classification

If your "contractor" works set hours, under your direction, on your equipment, indefinitely — the cheaper number may be irrelevant, because the arrangement may legally be employment, with back-pay, super and penalty exposure. Misclassification risk belongs in the comparison as a real cost.

Reading the result

Typically the comparison shows contractors cheaper for short, specialist, well-defined work and employees cheaper for ongoing core roles — but your own numbers decide it, and the crossover point depends on tenure and utilisation. Whatever you choose, document the reasoning; it's exactly the kind of decision that should live in your systems rather than the owner's head — see reducing founder dependency and our people function overview.

This is general information, not employment or tax advice — classification questions in particular deserve professional eyes.