A hiring manager turns down a contractor at $900 a day because the permanent salary band tops out at $180,000, and $180,000 divided by 260 working days is $692. The contractor looks thirty per cent expensive. The requisition goes to permanent, and everyone agrees they have been disciplined with the budget.
They have not. On the same $180,000 base, a permanent employee in New South Wales costs roughly $930 for every day they are actually at their desk. The contractor was the cheaper option, and the decision was made with a number that was wrong by about a third.
This is the most common arithmetic error in Australian technology hiring, and it is entirely avoidable. The fix takes about ten minutes and two figures you can look up on government websites. Here is the calculation, the sources behind it, and the cases where a contractor genuinely does cost you more.
Why is the day rate comparison usually wrong?
The error has two halves, and both of them push in the same direction.
The first half is on-costs. A salary is not what an employee costs. Superannuation, payroll tax and workers compensation sit on top of it, and none of them appear in the number written on the contract.
The second half is availability. A salary buys you a year of employment, not a year of work. Annual leave, public holidays and sick leave are already paid for inside that figure, which means the days you actually get are fewer than the days you divided by.
Contractors carry their own version of all of this. Their rate already absorbs their leave, their super and their downtime between engagements. That is why a contract rate looks high in isolation. You are seeing the fully loaded number on one side of the comparison and the stripped number on the other, and then treating them as equivalent.
What does a permanent employee actually cost on top of salary?
Three line items, all of them public and all of them easy to verify.
Superannuation is 12 per cent. The super guarantee rate rose to 12 per cent on 1 July 2025 and remains at 12 per cent for the 2026 to 2027 financial year, according to the Australian Taxation Office. This was the last scheduled increase in the series, so 12 per cent is now the settled figure rather than a moving target.
Payroll tax in New South Wales is 5.45 per cent above a $1.2 million threshold. Revenue NSW sets the 2025 to 2026 annual threshold at $1,200,000 and the rate at 5.45 per cent. Two details catch people out. Payroll tax applies to superannuation as well as salary, so it compounds on top of the 12 per cent. And if your total wages bill already clears the threshold, every additional hire is taxed from the first dollar, not the first dollar above $1.2 million.
Workers compensation depends on your industry classification. icare NSW sets premium rates by industry classification, and published rates span a wide band across the economy. Professional and computer services classifications sit at the low end. Check your own rate rather than assuming, but for a technology employer this is usually the smallest of the three.
How many days do you actually get?
Start with 260 weekdays in a standard working year.
The National Employment Standards give full time employees four weeks of paid annual leave and ten days of paid personal or carer’s leave, per the Fair Work Ombudsman. Four weeks is 20 days.
Then public holidays. Of the public holidays declared in New South Wales for 2026, ten fall on a weekday, so ten are days you pay for and do not get. The rest land on weekends.
That gives you 260 minus 20 minus 10, or 230 working days, before anyone takes a single sick day. If an employee uses their full ten day personal leave entitlement, you are at 220.
Note what this is not. It is not an argument that leave is waste. It is an argument that leave is already in the price, and that dividing an annual salary by 260 pretends otherwise.
So what is the real number?
Take the $180,000 base from the top of this article. The figure is illustrative, chosen because it is a round number rather than because it represents any particular role. Swap in whatever sits in your own salary bands and the shape of the answer does not change.
| Line item | Amount |
|---|---|
| Base salary | $180,000 |
| Superannuation at 12 per cent | $21,600 |
| Payroll tax at 5.45 per cent on $201,600 | $10,987 |
| Workers compensation (indicative) | $1,200 |
| Total employment cost | $213,787 |
Divide $213,787 by 230 working days and you get about $930 per day. At 220 days, it is $972.
The naive calculation gave you $692. The real number is about 34 per cent higher, and it still excludes recruitment fees, laptop and software licences, desk space, payroll administration, and the management time that a permanent hire consumes and a contractor largely does not.
So the contractor at $900 a day was not thirty per cent expensive. They were slightly cheaper, available immediately, and carried none of the termination risk.
Figures are indicative and based on published ATO, Revenue NSW, icare and Fair Work rates current as of September 2026. Your payroll tax position and workers compensation classification will differ. Check your own numbers before making a hiring decision.
When does a contractor genuinely cost more?
Often. This article is not an argument for contracting everything, and any recruiter who tells you otherwise is selling.
Three situations where permanent wins on cost, and they are not close.
When the work outlasts the engagement. A contractor at $900 a day for twelve months is roughly $207,000 in fees for about 230 days, and at the end of it the knowledge walks out the door. If the work is ongoing and the context is deep, you are renting something you should own. Contract hiring earns its keep on defined projects, surge capacity and specialist gaps, not on business as usual.
When you need institutional memory. Contractors are excellent at bounded problems with clear edges. They are a poor instrument for the kind of work where the value comes from having watched the system break in 2024 and remembering why. Platform decisions, architecture ownership and anything touching a codebase nobody has documented all favour permanent.
When the market lets you hire well. The Australian Bureau of Statistics put the unemployment rate at 4.5 per cent in July 2026, up from 4.4 per cent in June.
Wage growth has cooled to 3.2 per cent annually in the June quarter 2026, down from 3.4 per cent a year earlier, according to the ABS Wage Price Index. A softer market and slower wage growth mean permanent candidates are more available and less able to bid up their price than they were two years ago. That is an argument for locking in permanent talent now, not for renting it. The exception is the handful of skills where demand has not cooled at all, AI and machine learning chief among them, where contract is often the only way to get someone this quarter.
The point is not that contractors are cheap. It is that you should reach your decision using the correct number, and then choose on the grounds that actually matter, which are duration, knowledge retention and risk.
What to do this week
Open a spreadsheet and build the four line model above for one open requisition. Base, super at 12 per cent, payroll tax at your state rate applied to base plus super, and your actual workers compensation rate. Divide by 230.
Keep that cost per productive day next to your salary bands, alongside the rest of your hiring guides. It changes conversations. It tells you what a vacancy is really costing you while it sits open, it gives you a defensible number when finance asks why a contract rate looks high, and it stops you rejecting good people over arithmetic.
If you would like a second opinion on whether a specific role should be contract or permanent, talk to us about your hiring. We have been placing technology talent in Sydney since 2010, and the answer is more often permanent than this article probably implies.
Frequently asked questions
Is a contractor cheaper than a permanent employee in Australia?
On a like for like day rate basis, often yes for short engagements. A $180,000 permanent salary in New South Wales costs roughly $930 per productive day once superannuation at 12 per cent, payroll tax at 5.45 per cent and unworked leave are included. Over a long engagement, permanent is usually cheaper because the contractor rate applies to every day worked with no ceiling.
Do I pay payroll tax on superannuation?
Yes. In New South Wales, superannuation contributions form part of taxable wages for payroll tax purposes, so the 5.45 per cent applies to salary and super combined.
How many working days are in an Australian working year?
About 230 for a full time employee, calculated as 260 weekdays less 20 days of annual leave and the public holidays that fall on weekdays. It drops to about 220 if the full ten day personal leave entitlement is used.
Does the 12 per cent super rate increase again?
No. The super guarantee reached 12 per cent on 1 July 2025 and that was the final increase in the legislated schedule.
