HR & finance · Free calculator

Contractor vs. Employee Calculator

Compare the fully-loaded cost of a W2 employee against a 1099 contractor at equivalent skill level. Includes burden, benefits, and risk premium math.

Short answer

Contractor vs. Employee Calculator

-$9,500Contractor − Employee annual cost

🟡 Contractor saves $9,500 on direct cost, but employees add long-term IP, brand, and management overhead reductions. Marginal call. Loaded employee cost = $95,000 × (1 + 30.0%) = $123,500 annual + $23,750 ramp inefficiency = $147,250 Year-1. Contractor at $95/hr × 1,200 hrs = $114,000. Break-even hours: contractor matches employee cost at 1,300 billable hours per year.

How it's calculated: Employee $123,500 loaded · Contractor $114,000 at 1,200 hrs Adjust the inputs below to recalculate for your own numbers.

Disclaimer: Educational only — not legal, tax, or HR advice. Industry medians sourced from BLS, SaaS Capital, OpenView SaaS Benchmarks, and SBA Office of Advocacy. Your situation may differ materially.

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Employee base salary ($)$95,000

Employer burden (% over salary)30%

Taxes + benefits + equipment + overhead.

Contractor hourly rate ($)$95.00

Expected contractor hours/yr1,200

Employee ramp time (months unproductive)3

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Contractor − Employee annual cost

-$9,500

Employee $123,500 loaded · Contractor $114,000 at 1,200 hrs

Employee base salary$95,000

Employer burden (taxes + benefits)$28,500

Loaded employee cost$123,500

Year-1 cost incl. ramp$147,250

Effective employee hourly$59.38

Contractor annual cost$114,000

Difference-$9,500

Break-even hours/yr1,300

Related calculators

Employee true cost Freelance hourly rate Contractor vs. employee guide

Formula used

Cost comparison

Contractor wins below break-even hours (typically 1,200–1,600). Employee wins above, with the bonus of dedicated focus, IP capture, and brand investment.

Employee = Salary × (1 + burden) · Contractor = Rate × Hours

Typical employee burden

25–35%

Contractor break-even

~1,300 hrs/yr typical

Full-time hours

~2,080

Productive employee hrs

~1,700 after PTO

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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.

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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 editorial review

Reviewed on a rolling quarterly cycle. Dated reviews are published on the methodology record for each calculator.

Editorial standards

See our editorial policy and disclaimer. Results are estimates, not advice.

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