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 about $126,624 once super, leave provisions, payroll tax and a typical WorkCover premium are included, and more once recruitment, training and equipment are added.

On the assumptions in the table below, the multiplier is about 1.27x the base salary (about 1.21x for a business under the payroll tax threshold). 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 qualifying earnings, paid with each pay since Payday Super began on 1 July 2026, and received by the fund within 7 business days
• Workers compensation insurance: 0.3% to 10%+ of wages depending on industry risk classification, covering workplace injury and illness
• Payroll tax: 4.00% to 6.75% of total wages (including super) for employers exceeding the state-specific threshold
• Leave provisions: Annual leave at 7.69% of base salary, personal leave at 3.85%, long service leave accrual at about 1.67% per year of service

Beyond these four legislated costs, employers also absorb recruitment, onboarding and equipment costs such as desk space, hardware and software licences, which vary widely by role.

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, so the multiplier stays flat until salary passes the super maximum contribution base of $270,830, where the SG stops rising.

The table below shows the employer cost breakdown for FY2026-27 at five common salary levels, assuming a Victorian business above the payroll tax threshold (4.85%) and a 1.5% workers compensation premium. Pick your own state in the calculator above. 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. From 1 July 2026 the super guarantee has an annual maximum contribution base of $270,830 (it was $62,500 per quarter until 30 June 2026), so employers with staff earning above it pay SG only up to the cap unless contractually obligated otherwise.

How Is Superannuation Calculated for Employers?

Employers calculate superannuation at 12% of each employee's qualifying earnings for FY2026-27, paid with each pay to the employee's nominated super fund.

Qualifying earnings are ordinary time earnings plus, from 1 July 2026, commissions for work done entirely outside ordinary hours. Ordinary time earnings include base salary, commissions, shift loadings, and allowances that relate to ordinary hours of work, and exclude overtime payments, reimbursements, and lump sum termination payments. The ATO defines the distinction under Superannuation Guarantee Ruling SGR 2009/2.

Payment Deadlines

Since 1 July 2026, super must reach the employee’s fund within 7 business days of each payday — quarterly payment has ended. Missing that deadline triggers the Superannuation Guarantee Charge, now made up of the shortfall, notional earnings at the general interest charge rate compounded daily, and an administrative uplift of up to 60% that falls to nil on a voluntary disclosure within 30 days. The charge is now tax-deductible. The final quarterly deadlines, which applied to earnings paid up to 30 June 2026, were:

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 (FY2026-27)

A business with 20 employees averaging $90,000 each has a total wage bill of $1,800,000. In Victoria, this exceeds the $1,000,000 threshold by $800,000, generating a payroll tax liability of $38,800 (800,000 x 4.85%). The same business operating in South Australia pays $59,400: once wages pass $1,500,000, SA deducts a fixed $600,000 rather than the whole threshold, so the 4.95% applies to $1,200,000. Compare every state on the payroll tax calculator.

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 $122,997 in FY2026-27.

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

1. Base salary: $95,000
2. Superannuation (12% of qualifying earnings): $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 $1,000,000 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, which push the real total higher.

Use our Take-Home Pay Calculator to see that the employee on this $95,000 salary takes home approximately $74,080 in FY2026-27 after income tax and the Medicare levy (no HECS-HELP debt). The gap between the employer's total cost of $122,997 and the employee's take-home pay is $48,917 — made up of income tax, Medicare levy, super, payroll tax, insurance and leave provisions.

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 is paid $50/hour, the cost to the business is about $61.77/hour once super and paid annual and personal leave are counted, before payroll tax and WorkCover. A contractor charging a flat $65/hour on invoice can still work out cheaper when the work is irregular, because the business pays only for hours billed and the contractor provides their own insurance, leave and 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 FY2026-27?

The biggest change for employers on 1 July 2026 was Payday Super: SG is now due with every pay, must be received by the fund within 7 business days, is calculated on qualifying earnings, and is capped by an annual maximum contribution base of $270,830. Late contributions attract a rebuilt, tax-deductible Superannuation Guarantee Charge. The SG rate itself stayed at 12%, the legislated ceiling it reached on 1 July 2025.

That final step in the SG rate schedule lifted the employer cost of superannuation 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, where it stays in FY2026-27.

SG Rate History

Other changes affecting employer costs from 1 July 2026 include new PAYG withholding schedules for the cut from 16% to 15% on income between $18,201 and $45,000, the ACT payroll tax threshold falling to $1,750,000, and a higher Northern Territory rate for employers with Australia-wide wages of $100m or more. The Medicare Levy Surcharge threshold for singles is $105,000 in FY2026-27. 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