Contractor vs Employee Cost Calculator
Full annual cost comparison + break-even point.
Contractors cost more per hour but you avoid benefits, payroll taxes, and overhead. Employees have lower hourly equivalent but add 25–40% in burden. This calculator compares total annual cost and shows the hourly contractor rate that equals employee cost (break-even).
Inputs
Results
Employee total: $78,000
Contractor total: $150,000
Break-even rate ($/hr): $39
Insights
Formula
Employee total = Salary * (1 + burden%) Contractor total = Rate * Hours Break-even rate = Employee total / Hours
Input Definitions
What does each input mean?
- Employee salary
- Gross annual salary for the equivalent full-time role.
- Employee burden %
- Employer costs: FICA, benefits, overhead. Typically 25–40% of salary.
- Contractor rate
- Hourly rate. Contractors charge more per hour but no benefits/taxes.
- Hours needed/year
- Annual hours of work. 2000 ≈ full-time (40 hr × 50 weeks).
Related Calculators
Contractor or Employee — Which One Actually Costs More?
Contractors look cheaper because you skip payroll taxes, benefits, and overhead — but they typically charge higher hourly or project rates to compensate. Employees cost more in visible payroll costs but often deliver better long-term value for ongoing work. The right answer depends on role type, hours worked, and your specific cost structure. This calculator runs both scenarios with your actual numbers.
It’s most useful when you’re deciding how to staff a specific function for the first time, when a contractor relationship is maturing and you’re weighing conversion to full-time, or when you want to build an honest cost comparison. The decision has legal and strategic dimensions beyond cost, but cost should be modeled first — and this tool does that clearly.