Question 1

How much more do I need to earn as a contractor to match an employee's salary?

Accepted Answer

As a rule of thumb, a contractor needs to earn 25–35% more than an equivalent employee to have the same financial position after accounting for: no paid leave (4 weeks annual + 2 weeks sick + ~11 public holidays), no employer superannuation, and additional business expenses (insurance, accounting, equipment). Use this calculator to model your specific situation.

Question 2

Do I need to register for GST as a contractor in Australia?

Accepted Answer

You must register for GST if your annual turnover is $75,000 or more. Once registered, you add 10% GST to your invoices and remit it to the ATO quarterly via a Business Activity Statement (BAS). If your turnover is under $75,000, registration is optional but can sometimes be strategic.

Question 3

Should I operate as a sole trader (ABN) or set up a company?

Accepted Answer

A sole trader is simpler and cheaper to run but you pay tax at your personal marginal rates (up to 47%). A company pays a flat 25% or 30% tax rate and allows you to retain income in the company. A company is generally worth considering when your profit consistently exceeds ~$120,000–$150,000 per year, as the tax savings can outweigh the additional compliance costs.

Question 4

What is 'personal services income' (PSI) and how does it affect contractors?

Accepted Answer

Personal Services Income (PSI) rules apply when more than 50% of your income from a contract is a reward for your personal skills or efforts, rather than for a product or asset. If PSI rules apply, you cannot split income with a spouse or retain income in a trust/company in the same way — your tax must be paid as if you were an employee.

Question 5

Can a contractor still be classified as an employee by the ATO?

Accepted Answer

Yes. The ATO uses a multi-factor test to determine if a worker is truly an independent contractor or is, in reality, an employee (a situation called 'sham contracting'). Factors include: control over how work is done, ability to subcontract, who supplies tools, financial risk, and whether the worker can work for multiple businesses. Misclassification can result in significant back-payment obligations for employers.

Contractor vs Employee Comparator

Employee (PAYG) Details

Contractor (ABN) Details

Breaking Down the Hidden Costs of Contracting

The Superannuation Gap

Tax Deductibility

Key Checklist

How We Calculate Your Pay

Contractor vs Employee – Frequently Asked Questions

Related Career Frameworks