Contractor vs Employee at $120k: Which Pays More?
Earning $120k puts you in the 30% marginal bracket with a marginal rate of 30% for 2025–26. As an employee, your employer handles PAYG withholding, super guarantee (11.5%), and payroll tax — but you have limited deductions. As a contractor invoicing at roughly $500/day, you can claim legitimate business expenses ($6,000+ for home office, equipment, and professional development), but you're responsible for your own super, insurance, and leave entitlements.
At this income level you must register for GST, which means charging 10% on top of your invoices and remitting it quarterly via a BAS. The comparison below models both scenarios with identical gross income so you can see exactly where the money goes — tax, super, GST obligations, and deductible expenses — and what lands in your pocket after everything is accounted for.
Decision read
This is a material reduction in take-home pay.
The alternate setup changes yearly cash enough that you should justify it with a stronger non-cash benefit.
Baseline
Employee
Alternate
Contractor
Result
$90,812.00Employee
Annual gross$120,000.00
Income tax + levies$29,188.00
HELP repayment$0.00
Take-home pay$90,812.00
Monthly cash flow: $7,567.67
Effective rate: 24.3%
This scenario is using the cleaner baseline settings with no HELP debt, no bonus, and no salary sacrifice.
Result
$60,419.27Contractor
Contract income$120,000.00
Take-home pay$60,419.27
Employee equivalent take-home$75,445.77
GST + business costs$16,363.64
Monthly cash flow: $5,034.94
Effective rate: 49.7%
As an employee, you'd take home $15,026.49 more per year.
You'll need to pay $10,363.64 GST to the ATO.
Your voluntary super contribution of $13,090.91 is tax deductible.
Your business expenses save approximately $1,309.57 in tax.
Why the result moves
Compare the cash outcome, then inspect the structural reason
Contractor changes annual take-home by -$30,392.73 compared with Employee.
Contractor changes tax and levy outflow by +$938.18.
This is a structural comparison, not a pure tax-rate change. GST, expenses, and self-funded super all matter.
Frequently asked questions
How much take-home pay does a $120k contractor keep compared to an employee?
It depends on deductible expenses and super strategy. At $120k a contractor charging $500/day can typically claim $6,000+ in deductions, which lowers taxable income. However, contractors must self-fund super (11.5%), leave, and insurance. Use the calculator above to see the exact net comparison for your situation.
Do I need to register for GST as a contractor earning $120k?
Yes. The ATO requires GST registration once your business turnover reaches $75,000. At $120k you must charge 10% GST on invoices, lodge quarterly BAS returns, and remit the GST collected — though you can also claim GST credits on business purchases.
Should I salary sacrifice or go contractor at $120k?
At $120k (in the 30% marginal bracket), salary sacrifice into super is taxed at just 15% instead of 30% — an immediate saving on every dollar sacrificed up to the $30,000 concessional cap. Contracting offers broader deductions but carries more admin burden and risk. Compare both options in the calculator to see which works better for your goals.
Want the full picture?
Read our in-depth guide to understand the methodology, edge cases, and planning strategies behind this comparison.
Read the guide →