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The quick sum for a contract rate is your monthly salary divided by 20 working days. It is wrong in the contractor's disfavour every time. A contractor is paid only for the days they bill, buys their own medical aid and pension, and pays tax twice a year instead of every month. This post works through one example on the SARS tables for the 2027 tax year (1 March 2026 to 28 February 2027), and the calculator lets you run your own.
Run your own numbers
This is the full contractor rate vs salary calculator with its main fields. Switch Work it out between the two directions: salary to contractor gives the day rate that matches a package, contractor to salary gives the salary a day rate is worth. The chart shows your take-home a month against the number of days you bill. The full calculator adds leave, sick days, income protection, accounting and equipment.
The example: a R50 000 salary
- Gross salary R50 000 a month plus a 13th cheque - R650 000 a year.
- The employer adds 7.5% to a pension fund (R45 000 a year) and R1 500 a month towards a R4 000 medical aid for one person.
- Under 65, 15 days' annual leave, about 5 sick days and 3 family days, and four weeks a year between contracts.
- As a contractor: R800 a month income protection, R1 500 a month for an accountant and R20 000 a year on a laptop and software.
"Break-even" here means the same money to spend each month, the same amount saved for retirement and the same medical cover. On those terms the answer is R3 684 a day, or R461 an hour over 8 billable hours.
1. The days you can bill
- 2026/27 has 260 weekdays. 1 March 2026 is a Sunday, so the tax year is 52 full weeks.
- 10 public holidays fall on weekdays in it: 3, 6 and 27 April, 1 May, 16 June, 10 August (Women's Day is on a Sunday, so the Monday is off), 24 September, 16 and 25 December 2026 and 1 January 2027. Human Rights Day and the Day of Goodwill fall on Saturdays this year.
- The Basic Conditions of Employment Act gives an employee at least 15 working days' annual leave, 30 days' paid sick leave every three years and 3 days' family responsibility leave a year. As a contractor you still take the leave and still get sick - you are just not paid for it.
- Bench time is the cost most people leave out. Four weeks between contracts takes 20 more days off. In the example that leaves 207 billable days.
Bench time moves the answer more than anything else you can change: R3 360 a day with no gap at all (227 days), R3 684 with four weeks and R4 078 with eight (187 days). If you are not sure, model the gap you would struggle to survive, not the one you hope for.
2. What the employer pays that a contractor loses
- Pension: R45 000 a year in the example. A contractor puts the same into a retirement annuity to stand still - deductible up to 27.5% of income (the RA tax back calculator shows the saving).
- Medical aid subsidy: R18 000 a year. As a contractor you pay the whole R48 000. The medical scheme fees tax credit - R376 a month for you and your first dependant, R254 for each other - is the same either way (medical aid tax credit calculator).
- 13th cheque and bonus. They are part of the package the rate has to match - here the 13th cheque alone is R50 000.
- UIF cover. An employee pays 1% of salary up to R17 712 a month and is covered for unemployment, maternity and illness benefits (UIF calculator). Independent contractors are not covered.
- The employer also pays UIF and the 1% skills development levy, so this job costs it R722 255 a year - the employer cost calculator breaks it down. At R3 684 a day the contractor bills R762 679, about 6% more than that.
3. What a contractor pays out of their own pocket
- R140 600 a year in costs in the example: medical aid R48 000, RA R45 000, income protection R9 600, accounting R18 000 and equipment R20 000.
- Accounting fees and equipment come off your taxable income; the RA is deductible within the 27.5% limit.
- Income protection premiums are not deductible - the deduction was removed from 1 March 2015, and payouts are tax-free in return. With no sick pay, most contractors still carry it.
- Below R679 a day the example contract does not even cover these costs. With every cost taken out (no income protection, accountant or equipment), the matching rate would still be R3 428.
4. PAYE against provisional tax
- Employee: R12 740 a month in PAYE on the 2026/27 tables. Taxable income is R668 000 (salary, 13th cheque and both fringe benefits, less the pension), which falls in the 36% band: R125 599 plus 36% of the amount above R530 200, less the R17 820 primary rebate and the medical credit.
- Contractor: R157 079 a year, paid as provisional tax. SARS: anyone who earns income other than a salary is a provisional taxpayer. That is two IRP6 payments of about R78 540 - by 31 August 2026 and by 26 February 2027 (the last business day of February). The provisional tax calculator splits them for you.
- Put the tax aside every month. Nobody withholds it, and an estimate that is too low draws a penalty.
- Both sides end on R38 750 a month to spend, which is the point of the break-even rate. The take-home pay calculator shows the salaried side on its own.
Not modelled - check your own position.
- If you work full-time for one client, or through an agency, the client may have to deduct PAYE from your invoices under the personal service provider or labour broker rules in the Fourth Schedule. Not verified from a primary source for this post - ask a registered tax practitioner before you sign.
- Trading through your own company changes the tax completely - see the salary or dividend calculator.
5. VAT: the line moved to R2.3 million
- VAT registration is compulsory once your taxable supplies pass R2.3 million in any 12 months - raised from R1 million with effect from 1 April 2026 (SARS, Budget 2026).
- At 207 billable days that is a rate above about R11 111 a day. Below it, registering is optional.
- Once registered you add 15% VAT on top of your rate and pay it over to SARS, so the rates in this post are all excluding VAT. The VAT calculator adds it on.
6. The other way round: what a day rate is worth
- Offered R4 000 a day? On the same assumptions it is worth a salary of about R54 658 a month with the same benefits - not the R80 000 that 20 days x R4 000 suggests.
- The two directions agree: feed R3 684 a day back in and you get R49 993 a month, the R50 000 you started with less the rand the rate was rounded down by.
- To compare a day rate with an hourly or weekly figure from a job ad, use the salary converter.
Sources
- SARS, rates of tax for individuals, 2027 tax year (brackets, R17 820 primary rebate): sars.gov.za, read by CalcSA 16 October 2026. Medical scheme fees tax credit R376 / R376 / R254 and the R17 712 UIF ceiling: the SARS 2026/27 figures the CalcSA take-home pay calculator uses, checked 15 October 2026.
- SARS, provisional tax (who is a provisional taxpayer, payment dates): sars.gov.za, updated 21 August 2026, read 16 October 2026.
- SARS, value-added tax - Budget 2026: "The compulsory registration threshold is increased from R1 million to R2.3 million", effective 1 April 2026: sars.gov.za, updated 8 September 2026; and register for VAT, updated 8 October 2026. Both read 16 October 2026.
- Public holidays 2026 and 2027 and the Sunday rule (Public Holidays Act 36 of 1994): gov.za, read 16 October 2026.
- Annual, sick and family responsibility leave: Basic Conditions of Employment Act 75 of 1997, sections 20, 22 and 27. Not re-read at the primary source for this post.
- Independent contractors outside UIF: Unemployment Insurance Contributions Act 4 of 2002, definition of "employee", as summarised by The Tax Faculty. Secondary source - not verified at labour.gov.za.
- Income protection premiums not deductible from 1 March 2015 (Taxation Laws Amendment Act 2014). Not re-read at the primary source for this post.
- Skills development levy 1% of payroll, for employers paying more than R500 000 a year: SARS skills development levy, as used by the CalcSA employer cost calculator.
- Leave days, bench time, costs and benefits in the example are assumptions - change them in the calculator.
Calculators used in this post
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