Contractor vs Employee Pay Calculator
Convert an employee salary into the equivalent independent-contractor hourly rate, grossing up for lost benefits and self-paid payroll tax across your billable hours.
How to use this tool
- Enter the employee base salary you are comparing.
- Set the benefits/overhead load you must now self-fund (often 25–40%).
- Set the extra payroll tax you cover yourself (US default 7.65%).
- Enter your realistic billable hours, then read the equivalent contractor rate.
Thinking of leaving a salaried job to contract — or quoting a client who used to employ you? Convert the salary into the equivalent contractor hourly rate by grossing it up for benefits and self-paid taxes, then dividing by the hours you can actually bill.
Formula
Grossed-up value = Salary + Salary × Benefits load + Salary × Extra payroll tax
Equivalent contractor rate = Grossed-up value ÷ Billable hours per year
A contractor must replace the value of employer-paid benefits and pay the employer half of payroll tax themselves, so the equivalent rate is well above salary ÷ 2,080.
How it works
Comparing a salary to a contract rate is not as simple as dividing by hours worked. An employee receives a wage plus benefits the employer pays for — health insurance, a retirement match, paid leave, equipment, payroll-tax contributions. A contractor must self-fund all of that out of the headline rate. This calculator grosses the salary up by a benefits/overhead load and by the employer share of payroll tax, then spreads the total over the hours you can actually bill.
The benefits load is the lever that matters most: 25–40% is a common range once health coverage, retirement and paid time off are valued, but it varies widely by person and country, so it is an input. The extra payroll-tax field defaults to 7.65% — the US employer FICA share that a self-employed person covers through self-employment tax — and can be set to zero where it does not apply. Because contractors bill fewer hours than the 2,080 in a salaried year, a lower billable figure pushes the equivalent rate up.
Reviewed by the AbraCalc Freelance Desk. This is an educational comparison, not tax or legal advice; worker-classification rules and benefit valuations differ by jurisdiction — confirm with your authority (for the United States, the IRS).
Worked example
$100,000 salary, 30% benefits load, 7.65% extra tax, 1,500 billable hours
- Benefits/overhead added = 100,000 × 30% = 30,000.
- Self-paid payroll tax added = 100,000 × 7.65% = 7,650.
- Grossed-up value = 100,000 + 30,000 + 7,650 = 137,650.
- Equivalent rate = 137,650 ÷ 1,500 = 91.7667.
Equivalent contractor rate = $91.77
Equivalent contractor rate from a $100,000 salary (7.65% extra tax, 1,500 billable hours)
| Benefits load | Grossed-up value | Equivalent hourly rate |
|---|---|---|
| 0% | $107,650 | $71.77 |
| 10% | $117,650 | $78.43 |
| 20% | $127,650 | $85.10 |
| 30% | $137,650 | $91.77 |
| 40% | $147,650 | $98.43 |
| 50% | $157,650 | $105.10 |
Key terms
- Benefits load
- The value of employer-paid benefits expressed as a percentage of salary, which a contractor must self-fund.
- Employer payroll tax share
- The portion of payroll (e.g. FICA) an employer normally pays; a self-employed person pays both halves.
- Grossed-up rate
- A salary scaled up to include benefits and taxes the worker now bears directly.
- W-2 vs 1099
- In the US, W-2 denotes an employee and 1099 an independent contractor, with different tax and benefit treatment.
Frequently asked questions
- Why is the contractor rate so much higher than salary ÷ 2,080?
- Because a contractor self-funds benefits, pays the employer half of payroll tax, and bills fewer than 2,080 hours. Grossing the salary up and dividing by real billable hours captures all three effects.
- What benefits load should I use?
- A practical range is 25–40% of salary, covering health coverage, retirement contributions, paid leave and equipment. Value your own benefits and adjust; if your old job had rich benefits, use a higher figure.
- Is the 7.65% always right?
- It reflects the US employer share of Social Security and Medicare that self-employed people cover. Outside the US, or if you model self-employment tax separately, set it to zero or to your local figure.