Employer Cost Calculator: The True Cost of Hiring

How Much Does an Employee Really Cost an Employer?

An employee on a $100,000 base salary costs an Australian employer between $130,000 and $145,000 once all mandatory on-costs are included.

The employer cost calculator above demonstrates a multiplier that typically lands between 1.3x and 1.45x the base salary. This multiplier includes the Superannuation Guarantee at 12%, annual leave provisions at 7.69%, workers compensation insurance, and payroll tax for businesses above the state threshold. Employers who provide additional benefits such as salary-packaged novated leases, training budgets, or fringe benefits face an even higher true cost of employment.

Understanding this cost multiplier is critical for small business cash flow forecasting, headcount planning, and deciding between hiring employees versus engaging contractors. The Australian tax calculator treats take-home pay from the employee's perspective, but this guide examines the same salary from the employer's side of the ledger.

What Are the On-Costs of Employment?

On-costs are the mandatory expenses an employer pays on top of an employee's base salary, including superannuation, workers compensation, payroll tax, and leave loading.

These costs are legislated under federal and state law. An employer cannot legally avoid them. The four primary on-cost categories break down as follows:

• Superannuation Guarantee (SG): 12% of Ordinary Time Earnings, paid quarterly to the employee's nominated super fund
• Workers compensation insurance: 0.3% to 10%+ of wages depending on industry risk classification, covering workplace injury and illness
• Payroll tax: 3.75% to 6.85% of total wages (including super) for employers exceeding the state-specific threshold
• Leave loading: Annual leave at 7.69% of base salary, personal leave at 3.85%, long service leave accrual at 1.67% per year of service

Beyond these four legislated costs, employers also absorb recruitment expenses averaging $5,000 to $15,000 per hire, onboarding productivity losses of 30% to 50% for the first 3 months, and equipment costs of $5,000 to $15,000 annually for desk space, hardware, and software licences.

How Do On-Costs Differ for Casual vs Permanent Employees?

Casual employees receive a 25% loading on their base hourly rate under the Fair Work Act to compensate for no paid leave entitlements. This loading replaces the annual leave provision, personal leave provision, and notice period obligation. Casual workers still attract superannuation at 12%, payroll tax, and workers compensation premiums. The casual loading often makes the per-hour cost higher, but the flexibility of zero paid leave and no redundancy obligations makes casuals cheaper for unpredictable, seasonal, or project-based workloads.

Employer Cost Breakdown Table by Salary Level

The total cost of employment scales proportionally with salary, but the multiplier compresses slightly at higher income levels because some on-costs have fixed-dollar caps.

The table below shows the employer cost breakdown for FY2025-26 at five common salary levels, assuming a 4.85% payroll tax rate and 1.5% average workers compensation premium. Use our Take-Home Pay Calculator to see what the employee receives after income tax and Medicare levy.

Businesses below their state's payroll tax threshold remove the payroll tax row entirely, which drops the multiplier to approximately 1.21x. The super guarantee has a maximum contribution base of $65,070 per quarter ($260,280 per year) for FY2025-26, meaning employers with staff earning above that threshold pay super only up to the cap unless contractually obligated otherwise.

How Is Superannuation Calculated for Employers?

Employers calculate superannuation at 12% of each employee's Ordinary Time Earnings (OTE) for FY2025-26, paid quarterly to the employee's nominated super fund.

Ordinary Time Earnings include the employee's base salary, commissions, shift loadings, and allowances that relate to ordinary hours of work. OTE excludes overtime payments, reimbursements, and lump sum termination payments. The ATO defines the distinction under Superannuation Guarantee Ruling SGR 2009/2.

Quarterly Payment Deadlines

The SG must be paid within 28 days of the end of each quarter. Missing a deadline triggers the Superannuation Guarantee Charge (SGC), which adds a non-tax-deductible penalty of the shortfall amount plus an interest charge of 10% per annum and an administration fee of $20 per employee per quarter. The four quarterly deadlines for FY2025-26 are:

The $450-per-month minimum earnings threshold was removed on 1 July 2022. Every employee now receives superannuation regardless of how little they earn. For a detailed breakdown of SG rate history and contribution caps, see our Superannuation Guide.

What Is Payroll Tax?

Payroll tax is a state and territory government tax on employers whose total Australian wages exceed a state-specific annual threshold, charged as a percentage on every dollar above that threshold.

Payroll tax is calculated on the total wage bill, which includes gross salaries, superannuation contributions, allowances, fringe benefits, and contractor payments in some cases. Businesses operating across multiple states must register in each state where they have employees and apportion their threshold accordingly. Small businesses below the threshold in their state pay zero payroll tax, which removes the largest variable on-cost from their employer cost calculation.

Payroll Tax Rates by State and Territory (FY2025-26)

A business with 20 employees averaging $90,000 each has a total wage bill of $1,800,000. In Victoria, this exceeds the $900,000 threshold by $900,000, generating a payroll tax liability of $43,650 (900,000 x 4.85%). The same business operating in South Australia sits above the $1,500,000 threshold by only $300,000, producing a liability of just $14,850 (300,000 x 4.95%).

How Much Does Workers Compensation Insurance Cost?

Workers compensation insurance costs employers between 0.3% and 10%+ of wages depending on the industry classification and the employer's claims history.

Every Australian state and territory mandates workers compensation insurance for all employers. The premium is calculated as a percentage of the total remuneration paid to each employee, multiplied by an industry-specific rate set by the state's workers compensation authority. Employers with a poor claims history pay a loading above the base rate, while employers with clean records receive experience-based discounts.

Each state administers workers compensation through a different authority: icare in NSW, WorkSafe Victoria, WorkCover Queensland, WorkCover WA, ReturnToWorkSA, WorkSafe Tasmania, Comcare for ACT federal employees, and NT WorkSafe. Premium structures, dispute resolution processes, and benefit levels vary across jurisdictions.

Total Cost of Employment: Worked Example

A Melbourne-based marketing agency hiring a full-time marketing manager at $95,000 per year faces a total employment cost of approximately $122,726 in FY2025-26.

The following step-by-step calculation uses real Victorian rates:

1. Base salary: $95,000
2. Superannuation (12% of OTE): $95,000 x 0.12 = $11,400
3. Annual leave provision (4 weeks / 52 weeks): $95,000 x 0.0769 = $7,308
4. Personal leave provision (10 days / 260 days): $95,000 x 0.0385 = $3,654
5. Payroll tax (VIC: 4.85% on wages + super above $900k threshold): Assuming the business exceeds the threshold, ($95,000 + $11,400) x 0.0485 = $5,160
6. Workers compensation (professional services at 0.5%): $95,000 x 0.005 = $475

Adding these components: $95,000 + $11,400 + $7,308 + $3,654 + $5,160 + $475 = $122,997. The cost multiplier for this role is 1.29x. This excludes recruitment costs, training, equipment, and office space. Factoring those in brings the realistic total closer to $135,000 to $140,000, or a multiplier of approximately 1.42x to 1.47x.

Use our Take-Home Pay Calculator to see that the employee on this $95,000 salary takes home approximately $73,500 after income tax brackets, Medicare levy, and HECS-HELP repayments. The gap between the employer's total cost of $123,000 and the employee's take-home pay of $73,500 is $49,500 — consumed entirely by taxation, superannuation contributions, and insurance.

How Does Employee vs Contractor Cost Compare?

Hiring an independent contractor at a higher hourly rate is often cheaper than employing a permanent staff member once on-costs are factored into the calculation.

If an employee demands $50/hour, the true cost to the business reaches approximately $68/hour once super, leave, and sick days are accounted for. By comparison, if an independent contractor charges a flat $65/hour on invoice, the business saves money because the contractor provides their own insurance, receives zero paid leave, and pays their own super.

The ATO applies strict guidelines to determine whether a worker is genuinely an independent contractor or a "sham contractor" who is actually an employee. Misclassification exposes the business to back-payment of superannuation, payroll tax, workers compensation, and penalties. Key factors the ATO examines include control over work methods, the ability to delegate, the provision of tools, and the right to work for multiple clients. See our Contractor vs Employee Calculator for a detailed comparison.

What Changed in FY2025-26?

The Superannuation Guarantee rate increased to 12% on 1 July 2025, reaching its legislated ceiling after annual 0.5% increments since FY2021-22.

This final step in the SG rate schedule means the employer cost of superannuation increased from 11.5% in FY2024-25 to 12% in FY2025-26. For an employee earning $100,000, the annual super cost rose from $11,500 to $12,000 — an additional $500 per employee per year. The maximum super contribution base for FY2025-26 is $65,070 per quarter ($260,280 annualised), up from $62,270 per quarter in FY2024-25.

SG Rate History

Other key changes affecting employer costs in FY2025-26 include revised income tax brackets under Stage 3 tax cuts (affecting PAYG withholding calculations), updated payroll tax thresholds in several states, and the continuation of the "Medicare Levy Surcharge" at 1% to 1.5% for employees without private hospital cover earning above $93,000. Use our PAYG Withholding Tables for the current withholding schedule.

Related Resources

The employer cost calculator is one component of a broader payroll and taxation toolkit. The following guides and calculators address related aspects of employment costs, employee entitlements, and Australian tax obligations.

Frequently Asked Questions