Subcontractor vs Employee Calculator Australia

Deciding whether to remain a permanent employee or make the leap to becoming an independent subcontractor (often called a "subbie" in Australia) is one of the biggest career decisions a trade professional will make. While contracting offers higher hourly earnings and the freedom of running your own business, it also shifts all the financial risks, insurances, and overhead expenses onto your shoulders. Use our free calculator above to compare the two paths side-by-side.

What's the Real Difference Between a Subcontractor and an Employee?

Many new subbies make the critical mistake of thinking that going subcontractor just means a higher hourly rate. In reality, it is a completely different legal and financial setup. A permanent employee has their income tax withheld, receives a guaranteed 12.0% superannuation contribution from their employer, and receives paid leave. A subcontractor, on the other hand, operates under their own Australian Business Number (ABN), acts as a separate business entity, and must invoice clients for payment.

As a subbie, if you do not work, you do not get paid. You have no sick days, no annual holidays, and no public holidays. If your work vehicle breaks down, or if you injure yourself on the weekend, your business income stops immediately. This is why subcontractors must charge a premium rate that accounts for all of these self-funded buffers.

How the ATO Decides If You're an Employee or Contractor

The Australian Taxation Office (ATO) does not rely solely on the name of your contract or your ABN to determine your tax status. The ATO uses a multi-factor test to check if you are a genuine subcontractor or if your arrangement is actually "sham contracting." The key criteria they look at include:

• Control Over Work: Employees are directed on how, where, and when to work. Subcontractors have control over how the work is executed, often negotiating deadlines and scheduling their own hours.
• Tools and Equipment: Employees generally have tools provided, or receive an allowance for them. Subcontractors own, maintain, and transport all their own equipment (including major assets like work utes, ladders, and diagnostic gear).
• Financial Risk: Employees bear no financial risk in the business and are paid for their time. Subcontractors bear the risk of profit or loss on each job and are legally responsible for rectifying any faulty work at their own cost.
• Ability to Delegate: Employees must perform the work themselves. Subcontractors are free to hire someone else or delegate the work to other qualified workers if needed.

Financial Comparison: Employee vs Subcontractor

To evaluate if going solo is financially beneficial, you must compare all the entitlements you give up. The table below compares the typical financial elements of working as an employee versus operating as an independent subcontractor:

Example: Employee on $75,000 vs Going Subbie

Here is how a subcontractor rate is built from the bottom up to match a standard employee salary of $75,000 before tax in Australia:

Hidden Costs of Going Solo as a Subcontractor

Before you quit your job, write down these hidden costs and ensure they are covered by your contractor rates. The primary overheads that new subbies often underestimate include:

• Windshield Time (Travel): If you spend 2 hours a day driving between sites, that is 10 hours a week you cannot bill. Your hourly rate on site must cover this travel time, or you must charge a call-out fee.
• Public Liability Insurance: Required by almost every principal builder and client. A $5 million or $10 million cover policy will cost you $1,000 to $2,500 annually depending on your trade.
• Income Protection: If you injure yourself outside of work, you cannot claim workers comp. Income Protection or personal accident cover is vital, costing around $1,500 to $3,000 per year.
• Bookkeeping and accounting: Software like Xero or MYOB costs $40 to $70 per month. An accountant to manage your BAS lodgments and end-of-year tax returns will cost another $1,500 to $2,500.

Tax and GST Obligations for Subcontractors

As a subcontractor, tax is not automatically deducted from your pay. You must set aside 25% to 35% of every invoice in a separate bank account to cover your end-of-year tax bill and PAYG instalments.

Additionally, you must be aware of the ATO's **Personal Services Income (PSI)** rules. If more than 80% of your business income comes from a single client, the ATO may treat you as an employee for tax purposes. This restricts your ability to claim standard business deductions, ensuring sole traders do not split income simply to reduce tax.

When Does It Make Sense to Stay Employed?

Working as an employee is often the better option if you value stability. The benefits of employment include:

• Steady Income: You get a guaranteed paycheck every week or fortnight, regardless of whether the business is slow or busy.
• No Business Administration: You do not have to worry about bookkeeping, chasing invoices, lodging BAS, paying insurances, or dealing with tax debts.
• Provided Equipment: Your employer usually provides the work vehicle, safety gear, major tools, and covers all maintenance costs.
• Legal Protections: You are protected by unfair dismissal laws, workers compensation, and receive paid leaves and sick cover.

When Should You Consider Going Subbie?

Going subcontractor is a great career move if you want to grow a business and take control of your time. Subcontracting makes sense when:

• You Want Unlimited Earning Potential: You can negotiate higher rates, take on extra weekend contracts, or hire workers/apprentices to increase your turnover.
• You Value Schedule Flexibility: You can decide which projects to accept, negotiate your days on site, and take time off when it suits you.
• You Already Own Major Assets: If you already own a reliable trade ute, press tools, ladders, and diagnostic gear, you have already cleared the largest initial setup cost.
• You Want to Claim Deductions: Operating under an ABN allows you to write off all legitimate business expenses against your taxable income.