Contractor vs Employee Cost Calculator

See the real annual cost of hiring a 1099 contractor versus a W-2 employee. The employee side adds employer payroll taxes, FUTA/SUTA, benefits, and overhead — every rate is editable, and results update as you type.

📖 How it works & FAQ

Contractor hourly rate ($)

Contractor hours / week

Weeks per year

Employee annual salary ($)

Employer payroll tax — FICA (%)

FUTA + SUTA (%)

Benefits (% of salary)

Annual overhead ($)

What a hire really costs

The sticker price of a hire is never the whole story. A contractor who bills $55 an hour looks more expensive than an $85,000 salary on paper, but once you add employer payroll taxes, benefits, and overhead, the W-2 employee often costs more per productive hour. This calculator puts both options side by side using the real math: the contractor's cost is simply their hourly rate times hours worked, while the employee's cost stacks salary, FICA (~7.65%), FUTA & SUTA unemployment taxes (~2%), a benefits percentage, and annual overhead like equipment, software seats, and office space.

How to use it

Enter the contractor's hourly rate, hours per week, and weeks per year you expect to need them.
Enter the employee's annual salary for the equivalent role.
Adjust the employer payroll tax and FUTA/SUTA percentages if your state's rates differ — every rate here is editable.
Set benefits as a percentage of salary (health insurance, retirement match, PTO — 20–30% is typical) and add annual overhead in dollars.
Read the results: total annual cost for each option, the difference, the employee's true hourly cost, and the break-even contractor rate where the two options cost the same.

FAQ

What counts as employer payroll tax?: The employer's share of Social Security (6.2%) and Medicare (1.45%) — together 7.65% (FICA) — plus federal and state unemployment taxes (FUTA/SUTA), which typically add roughly 2% but vary by state and experience rating.
What should I include in overhead?: Anything you pay for an employee but not a contractor: a laptop, software licenses, desk space, training, and recruiting costs. Contractors usually bring their own tools.
Why can a pricier-looking contractor still be cheaper?: Because you only pay contractors for hours worked and skip taxes, benefits, and overhead. For short-term or part-time needs, that flexibility usually wins; for full-time, long-haul roles, employees often become cheaper per hour.
Does this decide worker classification for me?: No. The IRS and states classify workers by control and independence tests, not by what saves money. Misclassifying an employee as a 1099 contractor carries penalties.

Estimates only — not professional, financial, tax, or legal advice; tax rates, benefit costs, and fees vary by state, industry, and situation.