2023-04-03
When deciding between a contract rate position and a permanent salary job in Australia, it's essential to carefully weigh the pros and cons of each option. Both contract and permanent work have their advantages and disadvantages, which can impact your personal preferences, career goals, and lifestyle.
To help you make an informed decision, we've created a comprehensive guide discussing the key differences between contract and permanent work in Australia. Our web app at MoneyHead can also assist you in comparing contract rates to permanent salaries in terms of after-tax take-home pay, sick leave, annual leave, and more.
Comparing Contract Rate and Permanent Salary Jobs in Australia
Before delving into the factors that can influence your decision, let's examine the main differences between contract rate and permanent salary employment in Australia:
| Permanent | Contract |
|---|---|
| Paid fixed annual salary | Paid daily or hourly rate, including leave loading |
| Ongoing employment | Duration of employment varies (e.g., six weeks, 12 months) |
| Mix of business-as-usual and project work | Project-based and time-critical work for a fixed period |
| Paid leave entitlements | Fixed deliverables |
| Employer remits tax and other deductions | Contractor manages own tax and other deductions or outsources to a third party |
| Employer may offer training to supplement gaps in skills and experience | Requires a professional with specialist skills |
Factors to Consider When Choosing Between Contract Rate and Permanent Salary Jobs
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Risk tolerance: One of the critical factors to consider is your risk tolerance. A permanent position generally offers more job security than a contract role, as you have ongoing employment and a more stable income. With a contract job, there's an inherent risk of not finding work immediately after your current contract ends, which may lead to periods of unemployment. Consider your risk tolerance and financial stability before making a decision.
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Career goals: Think about your long-term career aspirations when choosing between contract and permanent positions. Contract work provides greater flexibility and freedom, as you can select assignments based on your interests, preferred work environment, and desired project duration. However, the project-based nature of contract work often means you don’t have access to the same long-term career development and progression opportunities as permanent staff. Many organizations prefer to promote from within and prioritize permanent employees for growth opportunities.
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Lifestyle goals: Your lifestyle goals also play a crucial role in determining the right choice for you. If you have plans like buying a house or starting a family, a permanent job with a stable income may be more suitable. Permanent employees typically have an easier time securing loans and have access to paid leave, which can be invaluable when starting a family or facing unexpected illness. On the other hand, if you prefer greater flexibility and the freedom to take extended breaks, contract work could be a better choice. As a contractor, you can take breaks between assignments to focus on personal interests, family life, or travel.
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Market conditions: It's essential to assess the current employment market and the demand for your skills before deciding between contract and permanent work. Contracting can be less risky in a stable job market with high demand for your expertise. When there's a strong or stable market, contracting becomes less risky, as there are more job opportunities available and a lower chance of projects being terminated prematurely. Consider both the present market conditions and the future outlook for your industry when making your decision.
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Earnings: One of the main attractions of contract work is the potential for higher pay compared to permanent positions. The higher rates for contract work often reflect the riskier nature of the job and the need for specialized skills. However, it's essential to factor in the costs associated with contracting, such as setting up a company, obtaining relevant insurance, and managing your pay, tax, and superannuation. Additionally, consider the value of paid leave entitlements and other benefits that you won't have access to as a contractor.
To compare earnings more accurately, use our MoneyHead web app to calculate the after-tax take-home pay for both contract and permanent positions.
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Financial planning: Can you afford breaks from employment? While contracting can offer higher pay and the opportunity for extended breaks between assignments, it's crucial to have a financial safety net in place for any unexpected periods of unemployment. A common practice among contractors is to set aside a portion of their earnings (e.g., one-third) to cover expenses during unplanned breaks from work.
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Administration: As a contractor, you'll be responsible for managing your tax and superannuation payments, which can require additional time and effort. You can choose to handle these administrative tasks yourself or outsource them to a third party, such as a contractor management organization.
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Work environment: The work environment can differ significantly between contract and permanent positions. Contractors often report being less involved in office politics and focusing more on their tasks at hand. However, contractors may also feel like outsiders in the workplace, with limited access to company knowledge or the ability to influence strategic, long-term decisions. Consider your preferences for workplace dynamics when deciding between contract and permanent positions.
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Job search frequency: Contract assignments typically end more frequently than permanent employment, which means contractors generally attend more interviews and complete more assessments than their permanent counterparts. Weigh the time and effort required for job hunting against the benefits of contracting when making your decision.
Summary of Pros and Cons of Contract Rate vs. Permanent Salary Jobs
| Permanent | Contract |
|---|---|
| Pros | Pros |
| Job security | Freedom and flexibility |
| Career progression opportunities | Choice of projects |
| Employment breaks | Employment breaks |
| Broadens skills and experience | Deepens skills and experience |
| Paid leave entitlements | Higher pay |
| Access to company L&D opportunities and courses | Less office politics or option to move on when assignment ends |
| Access to company benefits and perks | |
| Cons | Cons |
| Salary may not keep pace with market rates over time | Set up own company |
| Experience gained is limited to the scope of fewer organizations | Obtain relevant insurances (typically PI & PL) |
| Stuck with manager or team whether you like them or not | Manage own pay, tax, and superannuation |
| More work-related stress and politics | Self-funded training or L&D |
In conclusion, the choice between a contract rate and a permanent salary job in Australia depends on your personal preferences, career goals, lifestyle, and risk tolerance. Our MoneyHead web app can help you compare the after-tax take-home pay, sick leave, annual leave, and other factors to make a more informed decision. By carefully considering the pros and cons of each option, you'll be better equipped to choose the employment arrangement that best aligns with your needs and aspirations.