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Contractor vs Employee Cost Calculator

Compare the full yearly cost of hiring an employee with paying a contractor for the same hours, and find the break-even contractor rate.

Your numbers

$
%

Social security, national insurance or similar contributions paid by the employer.

%

Health cover, pension and other benefits, as a share of salary.

$

Equipment, software, workspace, training and hiring costs spread over a year.

A full-time employee is paid for about 2,080 hours but works about 1,700 to 1,850 after leave and holidays.

$

Lower cost option

Employee

Yearly difference

$16,000

Employee: total yearly cost
$110,000
Contractor: total yearly cost
$126,000
Break-even contractor rate
$61.11
Employee cost as a multiple of salary
1.38 x
The math behind it

  1. Employee

    $80,000 × (1 + 10% + 20%) + $6,000equals$110,000

  2. Contractor

    $70.00 × 1,800 hequals$126,000

  3. Break-even rate

    $110,000 ÷ 1,800 hequals$61.11

  4. Difference

    |$126,000 − $110,000|equals$16,000

A contractor's hourly rate looks expensive next to an employee's salary, but a salary is only part of what an employee costs. Payroll taxes, benefits, equipment and paid leave add a large share on top. This calculator compares the two on the same hours of actual work.

How it works

Employee cost = salary × (1 + employer taxes % + benefits %) + other yearly costs. In many countries the total lands between 1.2 and 1.5 times salary.

Contractor cost = hourly rate × the productive hours you need. You pay contractors only for time worked, while employees are also paid for holidays and leave.

The break-even contractor rate is the employee's total cost divided by productive hours. A contractor charging less than that is cheaper for the same output.

A worked example

An $80,000 salary plus 10% payroll taxes, 20% benefits and $6,000 of other costs totals $110,000 a year. For 1,800 productive hours, the break-even contractor rate is $61.11. A contractor at $70 an hour costs $126,000, so the employee is $16,000 a year cheaper.

Questions people ask

When does a contractor make more sense?

When the work is short-term, part-time, highly specialized, or uncertain. You avoid hiring and notice costs and pay only for hours used. For steady, full-time work, an employee is usually cheaper per hour.

Are there legal risks with long-term contractors?

Yes. Many countries have rules that treat a contractor who works like an employee as an employee, with back taxes and penalties. Check the classification rules where you and the contractor are based.

What should I include in other costs?

Laptop and equipment, software licences, office or co-working space, training, and recruiting costs divided by how many years you expect the person to stay.

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