Pty Ltd vs PAYG vs umbrella: contractor structures compared

Agency PAYG (labour hire)

You're a PAYG employee of the agency or labour-hire firm placing you. It withholds tax from your pay and pays your super guarantee, so you carry no business costs and face no personal services income (PSI) question: the payment is ordinary employment income, in your own name, from the start. The agency's payroll tax on your wage is its own cost, already built into what it can afford to pay you, rather than something deducted from your pay separately.

Umbrella company

You're a PAYG employee of a payroll company you chose yourself, rather than one the agency picked. It charges a fee for running your payroll and commonly passes its own payroll tax on to you before it works out your wage, though this varies by provider and neither figure has a published industry standard, which is why our day rate calculator takes both as inputs rather than assuming them for you. Otherwise it behaves like agency PAYG: you're an employee, tax is withheld and super is paid on your behalf.

Sole trader (ABN)

You invoice directly under your own Australian Business Number. Your profit (revenue less deductible business costs) is taxed at ordinary individual rates, the same scale your salary would be taxed on. No one pays you super, so any contribution is a personal, deductible choice you make yourself. Once your gross revenue reaches $75,000 a year you must register for GST. This structure suits a short contract, a side contract alongside other work, or any contract where the personal services income (PSI) rules genuinely don't apply. See our PSI rules guide to check.

Your own Pty Ltd

You invoice through a company you own, which pays out all of its profit as a salary to you plus the compulsory super guarantee, currently 12% of the salary it pays its director. Where the PSI rules apply to your contract, this is the only correct model: retaining profit inside the company defers tax rather than reducing it, because PSI-attributed income is taxed as yours regardless of which entity received it. A Pty Ltd also carries running costs a sole trader doesn't (ASIC's annual review fee, accounting and, usually, professional indemnity and public liability insurance), so it rarely pays for itself on a short contract.

Payroll tax: whose cost is it?

Payroll tax is a state tax on wages, and under agency PAYG and umbrella it's the payroll entity's liability rather than yours directly: 5.45% in New South Wales above the threshold, and it varies by state and territory. An umbrella company that passes its payroll tax on to you does so by taking it out of your rate before it calculates your wage, which is why the day rate calculator lets you toggle that assumption.

Under sole trader, payroll tax genuinely doesn't apply: it is a tax on wages an employer pays, and your own drawings from your own business aren't wages. Your own Pty Ltd is different in principle, since it really is the employer of its director and a director's salary really is taxable wages, but it isn't modelled here for a practical reason instead: payroll tax only starts once an employer's total annual wages exceed a threshold ($1,200,000 in New South Wales), and a company paying one contractor a salary sits well under that in every state. If your company has other staff, or grows to the point its total wage bill approaches the threshold, get that checked separately rather than assuming this calculator has covered it.

Which structure suits you?

There's no single right answer: it depends on contract length, whether the PSI rules apply, how much admin you want to carry and how much risk you're willing to hold personally. Agency PAYG and umbrella need the least admin and carry the least personal risk, at the cost of a fee or margin already built into the rate. Sole trader and your own Pty Ltd both mean running a business, with the PSI rules deciding which of the two is realistic once your contract is genuinely for your personal effort and skill.