A contractor billing A$600 a day can earn less than an employee on A$120,000. Contractors pay their own super, aren't paid for leave or public holidays, have gaps between contracts and pay their own business costs, so the rate has to cover all of that.
Below is how to turn a salary into a day rate, with a worked example and what to add on top.
What an employee gets that a contractor doesn't
| Benefit | Employee | Contractor |
|---|---|---|
| Super | 12% on top of salary | Pays it themselves |
| Annual leave | 20 days paid | Unpaid |
| Personal (sick and carer's) leave | 10 days paid | Unpaid |
| Public holidays | Paid, usually 10 to 13 days by state | Unpaid |
| Equipment, insurance, accountant | Provided or not needed | Pays it themselves |
| Workers' compensation | Covered | Not covered unless insured |
How the day rate is worked out
Revenue needed = salary + 12% super + business costsBillable days = 260 − leave − public holidays − unbilled daysDay rate = revenue needed ÷ billable daysGST is separate. Once your turnover reaches A$75,000 a year you must register, add 10% to each invoice and pass it on to the ATO.
Worked example
Example: Matching a A$120,000 salary
Revenue needed: A$120,000 + A$14,400 super + A$5,000 costs = A$139,400.
Billable days: 260 − 20 − 10 − 11 − 15 = 204.
Day rate: A$139,400 ÷ 204 = about A$683, or A$89.91 an hour over 7.6 hours. With GST, invoice A$751.67 a day.
Check: after super and costs, taxable income is A$120,000, the same as the employee's, so take-home is the same A$91,080.
Many contractors add 10–20% on top for the risk of longer gaps, no redundancy pay and no workers' compensation. To set a rate in rupees or US dollars instead, use the freelance hourly rate calculator.
How to use this calculator
- Enter the employee salary you want to match, before super.
- Adjust the days you won't bill: leave, public holidays and gaps between contracts.
- Add your yearly business costs and the hours in a billed day.
- Tick GST if you're registered or expect revenue of A$75,000 or more.
FAQs
Why is a contractor's rate so much higher than salary ÷ 260?
An employee is paid for about 41 days a year of leave and public holidays and gets 12% super on top. A contractor gets none of that, so the rate has to cover it, plus any gaps between contracts.
Do contractors pay different tax rates?
No. Sole traders pay the same resident tax rates and Medicare levy as employees, but in quarterly PAYG instalments rather than from each pay.
Do I have to pay myself super?
Sole traders don't have to, but it's wise. Personal contributions you claim as a deduction are taxed at 15% in super and count toward the A$32,500 concessional cap.
When do I need to register for GST?
When your GST turnover reaches A$75,000 a year, or is likely to. You then add 10% to invoices and lodge activity statements.
Sources
Results are estimates for Australian residents and aren't tax or financial advice. For your own return, check with a registered tax agent. Spotted a mistake? Tell us.