Contractor vs employee: what the day rate has to cover

Multiply a $700 day rate by 260 weekdays and you get $182,000 — a number that has lured many people into contracting and some of them back out again. The honest comparison starts with everything a salary includes that a day rate doesn't.

What disappears when you contract

An employee's package quietly contains: 12% super, four weeks of annual leave, ten-plus public holidays, sick and carer's leave, paid parental leave eligibility, notice periods, redundancy protection, workers' compensation, and equipment on someone else's budget. A contractor funds every one of those from the rate — or goes without.

The biggest hidden cost is days that don't bill. Take out leave you'll actually want, public holidays, sick days and bench time between contracts, and a well-booked contractor bills about 210–230 days, not 260. At 220 days, that $700 rate grosses $154,000 — before expenses, insurance, an accountant, and the super you now must pay yourself if you want retirement savings.

The tax rules: structure rarely saves you

The ATO's personal services income (PSI) rules exist for exactly this situation: income earned mainly from your personal skills is attributed to you and taxed at individual marginal rates, even if it's invoiced through a company or trust. For most IT, engineering and professional contractors, a company structure changes admin and liability — not the tax bill. The genuine lever contractors control is deductible super contributions: money moved from a 30–37% marginal rate to the 15% contributions rate, exactly like an employee's salary sacrifice.

GST (compulsory registration above $75,000 turnover) passes through — you collect it and remit it. Quote ex-GST and it disappears from the comparison.

Finding your break-even

The question that matters when an offer lands: what day rate equals this salary? Our calculator solves it directly — at 220 billable days, $5,000 of expenses and 12% self-funded super, matching a $100,000 package takes about $530 a day. A common rule of thumb says a fair rate runs 25–40% above salary-divided-by-working-days, which lands in the same territory.

Anything above break-even is your premium for carrying the risk: no notice period, no sick pay, and the bench. Whether that premium is enough is a personal call — some people price freedom high, others price security higher. Run your own numbers before anyone else's rule of thumb.