Compare total cost including FICA, benefits, PTO, and workers comp to see the true difference.
Payroll Costing
Contractor vs employee comparison that shows the real cost difference.
Enter the employee salary, employer tax rates, benefit costs, contractor hourly rate, and estimated hours to compare the total cost of a W-2 employee against a 1099 contractor and find the break-even rate.
Direct answerA contractor vs employee cost comparison calculates the total employer cost of a W-2 employee (salary plus taxes plus benefits) against the total cost of a 1099 contractor to show which option costs more and where the break-even rate falls.
All-in employee costBreak-even rateBenefit burden quantified
1. Build the scenario
CalculatorEnter the employee salary, employer taxes, and benefits alongside the contractor rate and hours. Or load the sample scenario.
Enter assumptions or load a sample scenario to see the results.
Live Tool
Contractor vs Employee Cost Comparison in the browser
Enter your employee and contractor details to compare total costs and find the break-even rate.
Privacy-first workflow
This page runs in the browser. No compensation data is sent to any server.
What this cost comparison solves
Comparing a contractor rate to an employee salary without accounting for employer burden gives an incomplete picture. This tool shows the total cost of each option.
See the contractor rate at which both options cost the same so you can negotiate informed.
Quantify the exact dollar cost of employer taxes and benefits to understand the real markup.
Key signals
Total employee cost, total contractor cost, break-even rate, and cost difference.
Decision support
Cost per hour comparison, benefit burden percentage, and classification considerations.
Detailed breakdown
Line-by-line cost components for the employee and contractor options.
Adds FICA, FUTA/SUTA, health insurance, retirement match, workers comp, PTO value, and other benefits to the base salary.
Calculates the contractor hourly rate at which both options cost the same, so you know where the crossover point is.
Shows the total benefit burden as a percentage of salary so you can benchmark against industry averages of 25-40%.
Converts the annual employee cost to an effective hourly rate for a direct apples-to-apples comparison with the contractor rate.
Guide Below The Tool
How to use the contractor vs employee cost comparison well
Key concepts, practical steps, and guidance for comparing employee and contractor costs.
A contractor vs employee cost comparison calculates the total employer cost of a W-2 employee (salary plus taxes plus benefits) against the total cost of a 1099 contractor to show which option costs more and where the break-even rate falls.
HR directors, CFOs, hiring managers, and finance teams evaluating staffing options.
Employee salary, employer tax rates, benefit costs, PTO value, contractor hourly rate, and estimated hours determine the cost comparison.
Workflow
Four practical steps
Use this calculator to model the total cost of each staffing option and find the break-even contractor rate.
1
Enter employee salary and benefits.Start with the annual base salary, then add employer FICA rate, FUTA/SUTA, health insurance, retirement match, workers comp, PTO weeks, and any other benefits.
2
Enter contractor rate and hours.Enter the contractor hourly bill rate and the estimated annual hours. The default is 2,080 hours (40 hours per week for 52 weeks).
3
Review the cost comparison.Compare the total annual cost for each option, the effective hourly rate for the employee, the break-even contractor rate, and the cost difference.
4
Export the analysis.Download the comparison for stakeholder review, budget planning, or to support the staffing decision with documented analysis.
Review Checklist
What to validate first
Key details that affect the accuracy of the cost comparison.
Use the actual or proposed annual salary. Including bonuses or commissions in the base affects the benefit cost calculations that are percentage-based.
Verify the employer FICA rate (typically 7.65%) and combined FUTA/SUTA rate for your state. These vary by state and employer experience rating.
Use actual employer-paid health insurance premiums, not the total plan cost. Include only the employer portion of retirement match, not employee deferrals.
Use the actual or quoted hourly bill rate. If the contractor quotes a project fee, divide by estimated hours to get the effective hourly rate.
Standard full-time is 2,080 hours. If the contractor will work part-time or on a project basis, adjust the hours to reflect the actual expected engagement.
Cost is only one factor. IRS worker classification rules (behavioral control, financial control, relationship type) determine whether a worker can legally be classified as a contractor.
Why This Page Exists
Built to make the contractor vs employee cost decision transparent
Comparing a contractor rate to an employee salary without accounting for employer burden leads to decisions based on incomplete data. This page quantifies the full picture.
See the total employer cost for each option side by side, including every tax and benefit component, instead of comparing rate to salary.
Know the exact contractor rate where costs are equal so negotiations and budgets start from the right number.
Ledger Summit can build workforce cost modeling tools for HR and finance teams. This page delivers value right now.
FAQ
Contractor vs employee cost questions, answered directly
Short answers for searchers and answer engines.
Employees typically cost 25-40% more than their base salary when you include employer FICA (7.65%), FUTA/SUTA (1-6%), health insurance, retirement contributions, workers comp, PTO, and other benefits. An employee earning $85,000 in salary may cost the employer $106,000-$119,000 in total compensation.
The break-even contractor rate is the hourly rate at which the total cost of engaging a contractor equals the total cost of employing a W-2 employee. Divide the total annual employee cost by the number of working hours per year (typically 2,080). A rate above this number means the contractor costs more; below means the contractor costs less.
It depends on the total cost comparison. Contractors have higher hourly rates but no employer tax or benefit burden. Employees have lower base pay but come with FICA, unemployment taxes, health insurance, retirement match, PTO, and other benefits that add 25-40% to salary. The break-even analysis shows which option costs less for your specific situation.
Employers pay the employer portion of FICA (6.2% Social Security up to the wage base plus 1.45% Medicare) on W-2 employees. They also pay FUTA (0.6% on the first $7,000) and SUTA (state unemployment tax, rates vary). None of these apply to 1099 contractors - contractors pay their own self-employment tax.
Add the base salary plus employer FICA (7.65%), FUTA and SUTA, health insurance premiums, retirement match, workers compensation insurance, the cost of PTO (salary divided by work weeks times PTO weeks), and any other benefits like life insurance, disability, or tuition reimbursement. The sum is the total employer cost.
Next Step
Need workforce cost modeling for your team?
Use the free calculator to compare contractor and employee costs. If you need multi-scenario modeling or integration with your HRIS, Ledger Summit can build the next layer.
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