PAYG vs Contractor Calculator
Should you stay employed or go contracting? Compare the numbers.
PAYG Employee
Contractor (Sole Trader)
Key Considerations
PAYG Benefits
- Paid leave (annual, sick, personal)
- Employer-paid super (11.5%)
- Workers' compensation coverage
- Stable, predictable income
Contractor Benefits
- Higher earning potential
- Tax-deductible business expenses
- Flexibility and autonomy
- Multiple income streams
Understanding the Key Differences Between PAYG and Contractor Work
The choice between PAYG employment and contractor work in Australia isn't just about pay—it's about control, responsibility, and long-term financial planning. As a PAYG employee, you benefit from employer superannuation guarantee contributions (currently 11.5%), paid annual and sick leave, and protection under fair work laws. In contrast, as a sole trader contractor, you have greater autonomy over your projects and rates, but you’re responsible for managing your own taxes, super, insurance, and leave. You also need to consider the risk of inconsistent income and the administrative burden of invoicing, BAS reporting, and maintaining business records. While contractors often earn a higher hourly or daily rate, this premium must cover the value of the entitlements employees receive—plus the costs of running a small business.
HECS-HELP Repayment Thresholds and Impact for Contractors
If you have a HECS-HELP debt, your repayment obligations depend on your taxable income—regardless of whether you’re employed or contracting. For the 2024–25 income year, repayment begins at a taxable income of $51,550, with rates rising incrementally up to 10% for incomes over $157,070. As a contractor, your taxable income is your net profit (gross revenue minus allowable deductions), not your gross turnover. This means smart expense claims—such as home office use, travel, tools, and professional fees—can reduce your taxable income and potentially lower your HECS repayment. However, the ATO scrutinises contractor arrangements closely to ensure they aren’t sham contracts designed to avoid employer obligations. Always keep accurate records and consider speaking with a tax professional if your situation is complex.
Break-Even Day Rate: How to Find Your True Equivalence
To compare PAYG and contractor offers fairly, you need to calculate your break-even day rate—the daily rate that gives you the same take-home pay as your current salary. This involves factoring in not only income tax and GST but also superannuation (as contractors typically don’t receive employer super), leave loading, and potential deductions. For example, if your PAYG salary is $120,000, your after-tax income is roughly $92,000 (assuming no other deductions). To match this as a contractor working 230 days/year, you’d need a gross revenue of about $155,000 (including GST), meaning a day rate of roughly $674. But after subtracting estimated super contributions (e.g., 11.5% of net income), allowable expenses, and tax, the effective rate needed may be even higher. Our calculator automates this breakdown so you can adjust variables and see real-time comparisons.
Frequently Asked Questions
Do contractors get super in Australia?
Generally no. As a sole trader contractor, you are responsible for your own super contributions. Employers only pay super for employees.
Do I need to charge GST as a contractor?
If your annual turnover exceeds $75,000, you must register for GST and charge 10% on your services. Below that threshold, registration is optional.
What expenses can I claim as a contractor?
Home office costs, equipment, professional development, insurance, accounting fees, travel between work sites, and other business-related expenses.
Is contracting better than PAYG employment?
It depends on your day rate, expenses, risk tolerance, and whether you value leave entitlements. Use our calculator to compare after-tax income for your specific situation.