Employee or contractor — which is right, and what does it really cost?
Run the ATO multi-factor classification test, then compare the true loaded cost of the same worker as an employee versus an independent contractor — super, leave, workers comp, payroll tax and admin, both ways.
Takes ~3 minutes · FY2026 rates · Figures stay in your browser until you choose to share them
Classification
ATO multi-factor test
True Cost
Both ways, fully loaded
Compliance
Super, TPAR, payroll tax
The Verdict
Which is cheaper, and why
About this tool
Employee vs Contractor Calculator
Deciding whether to bring someone on as an employee or engage them as an independent contractor is one of the more consequential calls an Australian small-business owner makes — and it's easy to get wrong. A contractor's hourly rate often looks dearer at first glance, but an employee carries a stack of on-costs (super, leave, workers compensation, payroll tax, admin) that don't show up in the headline salary. At the same time, calling someone a contractor when the relationship really looks like employment is unlawful "sham contracting" under the Fair Work Act, regardless of what the paperwork says. This tool tackles both halves of that decision in one pass: is the arrangement genuinely one or the other, and which is actually cheaper once every cost is loaded in.
How it works
The tool does two things side by side. First, it runs the ATO and Fair Work multi-factor classification test as a series of practical questions — who controls how, when and where the work is done; whether the worker can delegate; who supplies the major tools; who carries the commercial risk; whether pay is per hour or per result; and whether the person runs a genuine business with multiple clients. It weighs your answers and gives a directional read (leaning employee, leaning contractor, or borderline), reflecting that no single factor decides it and the whole relationship is looked at together. Second, it builds a true, fully loaded annual cost for the same role both ways, using your inputs (salary or equivalent, state, industry, contractor rate and hours) applied against current statutory figures — the Superannuation Guarantee rate, state-specific payroll-tax settings, indicative workers-comp rates by industry, annual and personal leave, leave loading, public holidays, long service leave accrual, GST and admin. It then shows which option is cheaper per year and per month, an effective loaded hourly rate for each, and the assumptions behind the estimate. It's a planning estimate, not a quote or a legal determination.
Who it’s for
Australian small-business owners and managers weighing whether to hire an employee or engage a contractor for a role, who want both the compliance classification and the real all-in cost before they commit.
- A contractor's headline rate and an employee's true cost aren't comparable until you load the employee side with super, leave, leave loading, public holidays, long service leave, workers comp, payroll tax and admin — this tool does that on both sides so you compare like with like.
- Cost should never lead the decision: if the ATO/Fair Work multi-factor test points to employment, engaging the person as a contractor is misclassification risk no saving can justify, and sham contracting carries civil penalties under the Fair Work Act.
- Contractors aren't automatically free of employer obligations — super can be payable when someone is engaged wholly or principally for their labour, workers-comp and payroll-tax may still capture their payments under "relevant contract" rules, and payments in certain industries must be reported to the ATO via TPAR.
Frequently asked questions
Is a worker a contractor just because they have an ABN and invoice me?
No. An ABN and an invoice don't settle it — the ATO and Fair Work look at the substance of the relationship, not the label. They weigh factors like who controls how and when the work is done, whether the person can delegate or subcontract, who supplies the tools, who carries the commercial risk, how the person is paid, and whether they genuinely run their own business serving multiple clients. If those indicators point to employment, the person can legally be an employee no matter what the contract says. The tool's classification step walks you through exactly these factors so you can see which way the relationship actually leans.
Why can an employee cost more than a contractor charging a higher hourly rate?
Because the salary is only the visible part. On top of it, an employer typically pays superannuation, workers compensation, annual and personal leave, leave loading, public holidays, long service leave accrual, potentially payroll tax, and the admin of running payroll — none of which appear in a headline wage. A contractor prices some of those things (like leave) into their own rate, which is why their rate looks higher. The tool builds the fully loaded annual figure for both options using current statutory rates and your own inputs, then shows which is genuinely cheaper once everything is counted.
Do I ever have to pay super or worry about payroll tax for a contractor?
Potentially, yes. Super can be payable to a contractor who is engaged wholly or principally for their labour, even if they hold an ABN — the arrangement, not the label, decides it. Separately, in most states payments to contractors under "relevant contracts" (broadly, those principally for labour) can be included in your payroll-tax calculation and quietly push you over the threshold, and contractor payments may also count toward your workers-comp declaration unless the contractor holds their own cover. The tool surfaces these exposures as indicative lines and flags them so you know to check the specifics with your accountant rather than assuming a contractor is obligation-free.
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