Contract vs. Permanent Job

What is a permanent job?

Permanent employees work for an employer and are paid directly by that employer.

• Permanent jobs doesn't have a predetermined end date to employment.
• In Australia, permanent employees have 20 days paid annual leaves and 10 days paid personal/carer leaves every year
• Employer pays superannuation to permanent employees and hold the tax withheld for the employee
• Permanent employee may have some other benefits rather than salaries such as free private health insurance

What is a contract job?

There is always an intermediate company between Contractor and Employer. The employer has a contract with the company and the contractor works for this intermediate company.

• Contract job always has a predetermined end date to employment
• Employer pay fees to the intermediate company with 10% GST
• The intermediate company does the payslip, pays superannuation to the contractor
• The intermediate company can be a job agency or owned by the contractor
• The intermediate company needs to have insurances for the contactor such as public liability and workers compensation

Permanent Salary

Permanent salary is calculated annually. And usually when people talk about permanent salary, there are two types:

• Base salary

A $100,000 base package salary means the employee will get $100,000 plus at least 9.5% superannuation of the base salary per year.

• Package salary

A $100,000 package salary means the employee will get $100,000 all together a year includes base salary and superannuation.

So Package Salary = Base Salary * (1+9.5%)

As a permanent employee, legally you can get 20 days paid annual leaves per year. And if you didn't use all of them when you leave the company, these annual days will be paid to you by your daily rate.

Contract Salary

If a contactor signed a contract with employer through the job agent, there is no special tax benefit compare with permanent salary.

But if the contactor signed the contract directly with the employer, employer will pay total fees plus 10% GST to the contactor.

How do you choose between contract and permanent job?

1. Contract job usually get 20% more salary than permanent job, so if you like more money but don't care about annual leaves, contract job is better for you
2. Contract job is not stable. You may easily get your contract extended if you performed very well, but still some companies such as Macquarie bank has a maximum 2 years contract length.
3. In order to enjoy more tax benefit, you have to work for at least 2 companies in a financial year. This is the reason for some high paid contractors keep changing jobs.
4. In order to have continuous contract jobs, you have to be good at job interviews and may need to build a good reputation as well.
5. Usually contractors will feel that it is too expensive to take a no-pay sick leave.