Salary to day rate: what should you charge?
A contract day rate that looks generous next to your old salary can actually leave you worse off. Here is how to work out the rate that truly matches — and why it is higher than you think.
Thinking of going contracting? The trap is comparing a day rate to your salary as if they are the same thing. They are not — a contractor covers costs an employer used to absorb. Here is how to find the rate that genuinely matches a salary.
What a salary really includes
As an employee, your salary comes with hidden extras: 12% super on top, paid annual leave (about 4 weeks), public holidays (around 11 days), and sick leave. You are paid for roughly 52 weeks but only work about 46. A contractor gets none of that — you are only paid for days you actually bill.
The billable-days problem
There are about 260 weekdays a year. Take out annual leave, public holidays, a week of sick days, and a buffer for time between contracts, and you are left with roughly 220 billable days. That is the number your rate has to spread across — not 260.
Worked example
Tom earns $120,000 as an employee. To match it as a contractor, he first adds 12% super, giving $134,400 he needs to earn. Spread over 220 billable days, that is about $611 a day (roughly $80 an hour). Note that is well above $120,000 ÷ 260 ($462) — the difference is what covers his leave, super and downtime.
Do not forget tax and costs
Both figures here are before income tax. Contractors also usually carry costs — insurance, software, an accountant — and pay tax through quarterly PAYG instalments rather than automatic withholding, so cash-flow discipline matters.
Work out your day rate
Convert a salary to the matching day rate, or see what a rate is really worth.
This is general information, not personal advice. If you are weighing a company structure, see our sole trader vs company guide, and use the pay calculator for take-home on either figure.
Frequently asked questions
How do I convert a salary to a day rate?
Add 12% super to the salary, add any business costs, then divide by your billable days a year (often around 220 after leave, public holidays and downtime). That gives a rate that genuinely matches the salary.
Why is a day rate higher than salary divided by working days?
Because contractors get no paid leave, sick days or public holidays, must fund their own super, and carry costs and time between contracts. A matching rate is typically 25-35% above the simple division.
How many billable days should I assume?
Start from about 260 weekdays, subtract roughly 4 weeks leave, 11 public holidays, a week of sick days, and a buffer for gaps between contracts — landing near 220. Adjust it to your expected workload.
Do contractors pay more tax?
Not inherently — the same income tax rates apply. But contractors pay via quarterly PAYG instalments rather than automatic withholding, must set aside their own super, and can often deduct genuine business expenses.