Contractor vs employee cost calculator
A contractor day rate looks expensive next to a salary. Once you load the salary with payroll taxes, benefits and the cost of hiring, the gap narrows and often reverses. This calculator shows both totals side by side for the duration you actually need.
Employee, 26 weeks
$82,011 to $103,428
Loaded pay plus taxes, benefits, equipment and one off hiring cost
Contractor, 26 weeks
$93,984 to $113,769
Day rate for the hours needed plus contracting admin and onboarding overhead
Break even point
At these inputs the contractor costs more per week. The employee becomes the cheaper option after roughly 14 weeks of continuous work, once the one off cost of hiring is repaid by the weekly saving. At the duration you entered the employee is cheaper by about $11,157.
Weekly comparison: employee $2,904 to $3,286, contractor $3,750.
Employee cost build up
Annual figures for the salaried option before we scale them to your duration.
| Line item | Low | High |
|---|---|---|
| Base salaryWhat lands on the offer letter | $120,000 | $120,000 |
| Employer FICASocial Security 6.2 percent up to the annual cap plus Medicare 1.45 percent | $9,180 | $9,180 |
| Federal unemployment taxFUTA on the first $7,000 of wages | $42 | $42 |
| State unemployment tax (CA)Experience rated. Mid range assumption 3.40 percent on the first 7,000 dollars | $167 | $381 |
| Workers compensation insuranceVaries widely by class code and claims history | $360 | $1,080 |
| BenefitsFamily medical with a large employer share, dental, vision, disability, life and retirement match | $17,110 | $31,270 |
| Equipment and softwareAnnualized from your stated budget, including refresh cycles | $2,040 | $3,240 |
| Remote overheadStipends, coworking, travel for onsite gatherings and shared admin cost | $2,124 | $5,664 |
How we estimate this
The employee side reuses our true cost of an employee model: base salary, employer FICA, federal and state unemployment tax, workers compensation, benefits at the tier you chose, equipment and remote overhead. We then scale that annual figure to the weeks you entered and add a one off hiring cost of roughly 6,500 to 18,000 dollars for recruiting, interviewing and onboarding.
The contractor side takes your day rate, converts your weekly hours into billable days, and adds a small weekly allowance for contract administration, insurance verification and vendor management. We apply a band of minus 5 percent to plus 15 percent because scope creep and rate escalation are far more common than underruns.
Break even logic
We compare the midpoint weekly cost of each option. When the contractor is more expensive per week, the one off cost of hiring an employee is divided by that weekly gap to give the number of weeks before permanent hiring pays for itself.
What this excludes
- Worker classification risk. Misclassifying an employee as a contractor can create back taxes and penalties that dwarf any saving here.
- Notice periods, severance and unemployment claims on the employee side.
- Knowledge retention value, which usually favours the employee over long horizons.
- Agency margin already embedded in a day rate quoted by a staffing firm.
Use this as a budgeting tool. Classification decisions belong with your counsel, not a calculator.