When contractor wins
Project-bounded work, specialized skill gap, fluctuating demand, no long-term IP ownership needs. The classic case: '12-week migration project' — pay a contractor $50K, finish in 12 weeks, done. Hiring an employee for the same work costs $50K AND keeps paying after.
When employee wins
Ongoing work, deep product knowledge accumulating, brand/culture matters, training investment pays off, IP must be owned cleanly. Most early-stage hires should be employees — contractor turnover and rate inflation eat the savings within 18 months.
The misclassification cliff
If you set hours, supply equipment, integrate them into a team — they're W2 regardless of what the contract says. The IRS uses a 20-factor test; getting it wrong triggers back-payroll-taxes + penalties (often 100%+ of the underpayment). Don't optimize around classification.
FAQ
What about benefits I'd skip with a contractor?
Already in burden — typical $8K–$15K/yr health, $4K match, etc. Burden % captures all of it. The clean math is loaded cost vs. contractor invoice.
Does contractor save on management?
Often the opposite. Contractors need scoping docs, weekly check-ins, and clean handoffs that employees don't. Budget 5–10% extra management time for contractor work.
What about staffing agencies (W2-of-record)?
Adds 30–60% markup over contractor rate — but you get W2 compliance, payroll, benefits, and easier off-ramping. Cost-wise usually a wash with hiring direct.
How this calculator is built
Independently maintained
Written by Sam Doshi and the RevenueLab editorial team. We don't sell the data feeds this tool is built on.
Sourced from primary data
Benchmarks come from public AdSense / Stripe / IRS disclosures and reader-submitted data — never third-party "$X per view" claims. Full methodology.
Last reviewed
June 2026. We re-check every figure on the platform on a rolling quarterly cycle.
Editorial standards
See our editorial policy and disclaimer. Results are estimates, not advice.