Employee vs Contractor Cost Calculator

This calculator adds up the real cost of each hiring option rather than just comparing a salary number to an hourly rate. An employee's true cost includes payroll tax, benefits and overhead on top of salary; a contractor's cost is simply the rate multiplied by the hours you actually need.

What goes into the fully loaded employee number

Salary is only the starting point. In the United States, employers pay a matching 7.65% in FICA payroll tax (Social Security and Medicare) on top of wages, according to the IRS, and that's before benefits like health insurance, retirement matching, paid time off, or overhead like a laptop, software licenses and office space. This calculator lets you set your own payroll tax, benefits and overhead percentages so the comparison reflects your actual numbers rather than a generic average.

Why the contractor side of the math looks simpler

A contractor's invoice is close to the full cost, since payroll tax and most benefits don't apply to properly classified independent contractors. That simplicity is exactly why a rate comparison alone can be misleading. A $65 hourly rate can look expensive next to a $70,000 salary until you divide that salary down to an hourly figure and load it with tax and benefits, at which point the picture often flips.

What raw cost doesn't capture

This calculator answers a narrow question, which option costs less on paper for a given amount of work. It doesn't weigh in on management overhead, ramp-up time, institutional knowledge, availability during business hours, or the intellectual property and non-compete protections that typically come with an employment relationship. Worker classification rules from the IRS and Department of Labor also matter here: whether someone can legally be treated as a contractor depends on the nature of the working relationship, not just a preference for lower cost.