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⚖️ Contractor vs Employee Pay Calculator

A $70,000 salary is not the same as $70,000 in contract income. Compare the true value of an employee package against the hourly rate a contractor needs to charge to break even — accounting for benefits, employer tax, and self-employment tax.

💼 Employee Side
Health insurance, retirement match, other perks
Varies by country — set to 0 if not applicable
🧑‍💻 Contractor Side
Extra self-employment tax vs an employee — varies by country
Usually lower than total hours worked
Vacation, sick days — unlike an employee, unpaid for a contractor

How the Comparison Works

A stated salary is only part of what an employee receives — employer-paid benefits and payroll tax contributions add real value that a contractor must fund entirely on their own. On the other side, contractors face costs employees never see: the full weight of self-employment tax, business expenses, and unpaid time off. This calculator builds both sides up from first principles, then finds the exact hourly rate at which the two options are worth the same.

Formula Used
True Employee Value = Salary + Benefits + (Salary × Employer Tax%)
Contractor Revenue Needed = TEV + Expenses + Extra SE Tax
Break-Even Rate = Revenue Needed ÷ (Billable Hrs/Week × (52 − Unpaid Weeks))
Worked Example
ComponentAmount
Salary$70,000
+ Benefits$12,000
+ Employer Tax (7.65%)$5,355
= True Employee Value$87,355
+ Contractor Expenses$4,000
+ Extra SE Tax (7.65%)$6,988.66
= Total Revenue Needed$98,343.66
÷ Billable Hours (30/wk × 48wks)1,440 hours
Break-Even Hourly Rate$68.29/hour (2.03× the $33.65 base salary rate)

Frequently Asked Questions

Why does the break-even rate come out to roughly double the base salary rate?
This is a common and realistic result. Benefits and employer tax typically add 20–30% to an employee's true value, while contractors lose paid time off, must self-fund the full self-employment tax burden, and can only bill a fraction of their total working hours — each of these compounds. A break-even rate of 1.5–2× the naive salary-to-hourly conversion is a widely cited rule of thumb.
What counts as "billable hours" versus total hours worked?
Billable hours are only the time you can actually invoice a client for. Time spent on admin, invoicing, marketing, finding new clients, and unpaid client communication is real working time but is not billable — which is why this figure should be noticeably lower than a standard 40-hour week.
How do I estimate my Additional Self-Employment Tax percentage?
This should reflect the extra tax burden a contractor bears that an employer would otherwise cover — in the US, this is commonly estimated around 7.65%, mirroring the employer's share of FICA that a self-employed person must now pay themselves. This varies significantly by country, so check your local tax rules or consult an accountant for an accurate figure.
Is charging exactly the break-even rate a good idea?
Treat break-even as a floor, not a target. It is the rate at which you are no better and no worse off than taking the employee offer — it does not account for the extra risk, inconsistency, and lack of job security that comes with contracting. Many contractors add a margin above break-even to compensate for that added risk.
How is this different from the Freelance Rate Calculator?
The Freelance Rate Calculator derives a minimum rate purely from your own income goal and costs, with no reference point. This calculator instead starts from a specific employee salary offer and works out the contractor rate that would match its true total value — useful when directly comparing two competing offers rather than setting rates from scratch.

Contractor vs Employee Pay Calculator

This contractor vs employee pay calculator compares the true value of a salaried position against the hourly rate a contractor would need to charge to match it, once benefits, employer-paid payroll tax, self-employment tax, and unpaid time off are all accounted for. A stated salary figure alone understates an employee's real compensation, while a contractor's headline hourly rate overstates their real take-home once business costs and non-billable time are factored in — this tool puts both on equal footing.

The result is a genuine break-even point: charging below the calculated rate as a contractor means accepting less total value than the employee offer, even if the hourly number looks larger on paper. This is especially useful when comparing a specific job offer against a specific contract rate, rather than setting freelance pricing from scratch.

Setting your rates from scratch instead? Use our Freelance Rate Calculator to build a rate from your own income goals, or check the Salary and Hourly Pay Converter to convert a known pay figure between time periods.