People search for a contractor versus employee cost calculator when the same role can be filled two ways and the quotes are hard to line up.
The contractor versus employee calculator puts both stacks on one year of work.
Employee cost = salary × (1 + burden percent) + overhead
Contractor cost = hourly rate × hours
The smaller total wins the cost comparison. A gap under half a cent is treated as a tie.
The 30% in the default boxes is an example you type. It is not an IRS rate. Publication 15 for 2026 sets the employer share at 6.2% for Social Security and 1.45% for Medicare. Together that is 7.65% while wages are at or under the Social Security wage base of $184,500. Medicare has no wage base. Benefits, a bonus, and a laptop are extra, and they belong in the percent or in the overhead box only if you want them in the total.
The IRS classification page says you generally withhold income tax, Social Security, and Medicare from an employee’s wages, and you pay the matching employer share. You generally do not withhold or pay those taxes on payments to an independent contractor. The same page sorts the facts into behavioral control, financial control, and the type of relationship. It says there is no set number of factors that makes someone an employee. The cheaper total on this page does not decide that question. If the facts are unclear, Form SS-8 asks the IRS, and the page says a determination can take at least six months.
The SBA hiring guide treats taxes and benefits as part of what an employee costs. That is the burden box. A rate you quote a client, after your own tax reserve, is a different question, covered in the after-tax hourly post and the freelance rate post.
Fig 1
Two stacks, one year of work
The burden percent applies to salary only
Keep the smaller total. Classification still follows the IRS facts, not the gap.
Example 1: $90,000 against $80 an hour
Inputs: salary $90,000, burden 30%, overhead $12,000, contractor rate $80, hours 1,600.
Salary after the burden: 90,000 × 1.30 = $117,000
The 30% itself is 90,000 × 0.30 = $27,000
Employee cost: 117,000 + 12,000 = $129,000
Contractor cost: 80 × 1,600 = $128,000
Gap: 129,000 − 128,000 = $1,000
The contractor is $1,000 cheaper in this model.
Calculator result
Contractor vs employee cost
- Annual salary
- $90,000.00
- Payroll taxes and benefits
- 30%
- Employee overhead
- $12,000.00
- Contractor hourly rate
- $80.00
- Contractor hours / year
- 1600 hrs
Contractor
is estimated to cost $1,000.00 less this year
- Employee cost
- $129,000.00
- Contractor cost
- $128,000.00
- Cost gap
- $1,000.00
That $1,000 is about 0.8% of either total. A small move in hours, in the rate, or in the burden flips it. Examples 3, 4, and 9 are those moves.
Fig 2 · 1/2
One year, two totals
Defaults. The 30% burden is an example, not an IRS rate.
Annual cost
Employee
$129,000
Contractor
$128,000
The employee stack is $129,000.
The contractor invoice is $128,000, which is $1,000 less.
Where the $129,000 goes
The salary is still $90,000. The burden adds $27,000. Overhead adds $12,000.
Share of the employee stack:
Salary: 90,000 / 129,000 = 69.8%
Burden: 27,000 / 129,000 = 20.9%
Overhead: 12,000 / 129,000 = 9.3%
Fig 3 · 1/3
Inside the $129,000
Salary, then the 30% burden, then overhead
Salary
$90,000
Burden
$27,000
Overhead
$12,000
Salary is $90,000, which is 69.8% of the stack.
The 30% burden is $27,000, which is 20.9%.
Overhead is $12,000, which is 9.3%.
A month of this employee stack is 129,000 / 12 = $10,750. A month of the contractor invoice is 128,000 / 12 = $10,666.67. The page reports the year, because the salary and the overhead are annual figures. Splitting either total by 12 assumes the work runs all year. Example 8 is the case where it does not.
Example 2: burden is only the 7.65% employer share
Same salary, same contractor quote. Burden 7.65%. Overhead $0.
Employer FICA: 90,000 × 0.0765 = $6,885
Employee cost: 90,000 + 6,885 = $96,885
Contractor cost stays $128,000
Gap: 128,000 − 96,885 = $31,115
The employee is $31,115 cheaper once the 30% and the $12,000 come out.
$90,000 is under the 2026 wage base of $184,500, so the flat 7.65% matches Publication 15 on this salary. Social Security is 90,000 × 0.062 = $5,580. Medicare is 90,000 × 0.0145 = $1,305. Those two pieces are the $6,885.
Calculator result
Contractor vs employee cost
- Annual salary
- $90,000.00
- Payroll taxes and benefits
- 7.65%
- Employee overhead
- $0.00
- Contractor hourly rate
- $80.00
- Contractor hours / year
- 1600 hrs
Employee
is estimated to cost $31,115.00 less this year
- Employee cost
- $96,885.00
- Contractor cost
- $128,000.00
- Cost gap
- $31,115.00
This is the comparison people skip when they leave the default 30% in the box. The 30% is doing $27,000 of work. Employer FICA on this salary is $6,885. The other $20,115 inside that 30% is benefits or other payroll cost you decided to include. If you do not have that cost, do not leave it in the percent.
Example 3: the same contractor works 2,000 hours
Back to the Example 1 stack. Salary $90,000, burden 30%, overhead $12,000, rate $80. Hours rise from 1,600 to 2,000.
Employee cost stays $129,000. A salary does not grow because the year had more hours.
Contractor cost: 80 × 2,000 = $160,000
Gap: 160,000 − 129,000 = $31,000
The employee is now $31,000 cheaper. The extra 400 hours cost 400 × 80 = $32,000, and that is more than the $1,000 the contractor was saving.
Calculator result
Contractor vs employee cost
- Annual salary
- $90,000.00
- Payroll taxes and benefits
- 30%
- Employee overhead
- $12,000.00
- Contractor hourly rate
- $80.00
- Contractor hours / year
- 2000 hrs
Employee
is estimated to cost $31,000.00 less this year
- Employee cost
- $129,000.00
- Contractor cost
- $160,000.00
- Cost gap
- $31,000.00
At 1,000 hours the same $80 rate bills 80 × 1,000 = $80,000. The employee stack is still $129,000, so the contractor is cheaper by 129,000 − 80,000 = $49,000. Unused employee hours still sit in the salary. Unbilled contractor hours never hit the invoice.
Fig 4 · 1/2
Hours move only the invoice
Employee stack stays at the Example 1 total. Rate stays $80.
- Employee
- Contractor
| Category | Employee | Contractor |
|---|---|---|
| 1,000 hrs | $129k | $80k |
| 1,600 hrs | $129k | $128k |
| 2,000 hrs | $129k | $160k |
The employee stack stays $129,000. Hours do not change a salary.
At $80 the contractor invoice is $80,000, then $128,000, then $160,000.
Example 4: the rate that ties, and the rate that flips
Employee cost is still $129,000 on the Example 1 inputs. Divide by the 1,600 hours.
129,000 / 1,600 = $80.625
At $80.625 the contractor invoice is 80.625 × 1,600 = $129,000. The page reports a tie, primary result $0.00, label “same estimated annual cost”. The cost-gap row drops off, because the two totals match.
One step up, at $81:
81 × 1,600 = $129,600
The employee is cheaper by 129,600 − 129,000 = $600.
One step down, at the default $80, the contractor is cheaper by $1,000. From $80 to $81 the winner changes, and the tie sits at $80.625.
The hour count that ties, if you keep $80 and the $129,000 employee stack:
129,000 / 80 = 1,612.5 hours
That is 12.5 hours past the default 1,600. Past that, every extra hour at $80 adds $80 to the contractor side and nothing to the salary.
Fig 5 · 1/6
Contractor cost as hours rise
Rate is $80. The employee stack on Example 1 is $129,000 the whole way.
Contractor invoice
- Contractor
| Point | Contractor |
|---|---|
| 0h | $0.00 |
| 400h | $32k |
| 800h | $64k |
| 1,200h | $96k |
| 1,600h | $128k |
| 2,000h | $160k |
At 1,200 hours the invoice is $96,000, still under $129,000.
At 1,600 hours it is $128,000. At 2,000 hours it is $160,000. The stacks meet at 1,612.5 hours.
Example 5: a $60,000 role and 1,000 contractor hours
Inputs: salary $60,000, burden 7.65%, overhead $0, rate $75, hours 1,000.
Employer FICA: 60,000 × 0.0765 = $4,590
Employee cost: 60,000 + 4,590 = $64,590
Contractor cost: 75 × 1,000 = $75,000
Gap: 75,000 − 64,590 = $10,410
The employee is $10,410 cheaper if you truly have no benefits and no overhead, and the contractor only works 1,000 hours. $60,000 is also under the wage base, so 7.65% still matches Publication 15.
The break-even hours at $75, against this $64,590 employee cost:
64,590 / 75 = 861.2 hours
Below that, the contractor invoice is smaller. Above it, the salary is smaller, as long as the burden stays at 7.65% and overhead stays at zero. Add a health plan and you are back to typing a higher percent.
Example 6: $200,000, and the wage base the flat 7.65% misses
Inputs: salary $200,000, burden 7.65%, overhead $0, rate $150, hours 1,600.
The page applies the percent you type to the whole salary.
7.65% of 200,000 = $15,300
Employee cost: 200,000 + 15,300 = $215,300
Contractor cost: 150 × 1,600 = $240,000
The employee looks $24,700 cheaper.
That 7.65% is the wrong employer bill on this salary. Publication 15 caps the 6.2% Social Security piece at the wage base. For 2026 that base is $184,500. Medicare at 1.45% still applies to all $200,000.
Social Security: 184,500 × 0.062 = $11,439
Medicare: 200,000 × 0.0145 = $2,900
Employer FICA: 11,439 + 2,900 = $14,339
Wages over the base: 200,000 − 184,500 = $15,500
Social Security that the flat 7.65% still charges on those wages: 15,500 × 0.062 = $961
So the typed employee cost of $215,300 is $961 high. The capped cost is 200,000 + 14,339 = $214,339.
As a percent of salary, 14,339 / 200,000 = 7.1695%. Type 7.1695 in the burden box and the page reports employee cost $214,339, contractor cost $240,000, employee cheaper by $25,661.
The $961 does not flip the winner here. The contractor invoice is still the larger number. It does change the gap, and on a closer quote it would change the winner. Example 4 already showed a winner that moves on $600.
The page will not apply the wage base for you. Lower the percent, or put $14,339 in overhead and set the burden to 0. Do not do both.
Example 7: a clean tie at $100,000
Inputs: salary $80,000, burden 25%, overhead $0, rate $100, hours 1,000.
Employee cost: 80,000 × 1.25 = $100,000
The 25% is 80,000 × 0.25 = $20,000
Contractor cost: 100 × 1,000 = $100,000
The primary result is $0.00, with the label “same estimated annual cost”. There is no cost-gap row. The two formulas landed within half a cent, so the page calls it a tie. At 1,001 hours the contractor invoice is $100,100, and the employee is $100 cheaper.
Example 8: 600 hours against a full salary
Inputs: salary $75,000, burden 20%, overhead $18,000, rate $95, hours 600.
Salary after the burden: 75,000 × 1.20 = $90,000
The 20% is 75,000 × 0.20 = $15,000
Employee cost: 90,000 + 18,000 = $108,000
Contractor cost: 95 × 600 = $57,000
Gap: 108,000 − 57,000 = $51,000
The contractor is $51,000 cheaper. You are comparing a year of salary and a year of overhead with about 600 hours of invoiced work. That is a fair comparison when the employee would be on payroll all year and the contractor would not. It is a poor comparison when both people would work the same 600 hours. In that case, price the employee hours you would pay, or raise the contractor hours to the year you are staffing.
Hours that would tie this $108,000 employee stack at $95:
108,000 / 95 = 1,136.84 hours
600 hours is about half of that. The large gap is the unused half of a salary, plus overhead that does not shrink when the contractor goes home.
Example 9: what if the burden drops from 30% to 15%
Hold the rest of Example 1 still. Salary $90,000, overhead $12,000, rate $80, hours 1,600. Change only the burden.
At 15%: 90,000 × 0.15 = $13,500
Employee cost: 90,000 + 13,500 + 12,000 = $115,500
Contractor cost stays $128,000
The employee is cheaper by 128,000 − 115,500 = $12,500
At 7.65%, with the same $12,000 of overhead still in the box:
90,000 × 0.0765 = $6,885
Employee cost: 90,000 + 6,885 + 12,000 = $108,885
The employee is cheaper by 128,000 − 108,885 = $19,115
At 30% we are back to Example 1. The contractor is cheaper by $1,000.
The stacks meet when the burden dollars plus $90,000 plus $12,000 equal $128,000.
128,000 − 12,000 − 90,000 = $26,000 of burden
26,000 / 90,000 = 28.888…%
Type 28.88 and the employee cost is $127,992, so the employee is $8 cheaper. Type 28.89 and the employee cost is $128,001, so the contractor is $1 cheaper. The default 30% is just past that line, which is why Example 1 comes out $1,000 toward the contractor.
Fig 6 · 1/3
Same salary, three burden rates
Overhead stays $12,000. The contractor invoice on these hours is $128,000.
- Salary
- Burden
- Overhead
| Category | Salary | Burden | Overhead |
|---|---|---|---|
| 7.65% | $90k | $6.9k | $12k |
| 15% | $90k | $14k | $12k |
| 30% | $90k | $27k | $12k |
Salary is $90,000 in each column.
Burden is $6,885 at 7.65%, $13,500 at 15%, and $27,000 at 30%.
Overhead of $12,000 brings the 30% column to $129,000.
Example 10: a laptop counted on one side
Example 1 says the contractor is $1,000 cheaper. Suppose $2,400 of the $12,000 overhead is a laptop, and you will buy one for the contractor too. The $80 rate does not include it.
Contractor cost with the laptop: 128,000 + 2,400 = $130,400
Employee cost stays $129,000
The employee is cheaper by 130,400 − 129,000 = $1,400
The page has no second overhead box. Put the laptop into the contractor rate. 2,400 / 1,600 = $1.50, so the rate becomes $81.50.
81.50 × 1,600 = $130,400
The result flips from “contractor, by $1,000” to “employee, by $1,400”. The IRS financial-control facts ask who provides the tools. This arithmetic is the cost version of that question. Leave the tools on one side and the $1,000 gap is an accounting choice.
The other fix is to take the laptop out of employee overhead when the contractor will not get one either. Overhead becomes 12,000 − 2,400 = $9,600.
Employee cost: 117,000 + 9,600 = $126,600
Contractor cost stays $128,000
The employee is cheaper by $1,400 again. Same $1,400, because you removed $2,400 from the side that used to carry it, and the old gap was $1,000 the other way. 2,400 − 1,000 = 1,400.
How the ten cases compare
| Example | Salary | Burden | Overhead | Rate | Hours | Employee | Contractor | Cheaper by |
|---|---|---|---|---|---|---|---|---|
| 1. Defaults | $90,000 | 30% | $12,000 | $80 | 1,600 | $129,000 | $128,000 | Contractor, $1,000 |
| 2. FICA only | $90,000 | 7.65% | $0 | $80 | 1,600 | $96,885 | $128,000 | Employee, $31,115 |
| 3. More hours | $90,000 | 30% | $12,000 | $80 | 2,000 | $129,000 | $160,000 | Employee, $31,000 |
| 4. Tie rate | $90,000 | 30% | $12,000 | $80.625 | 1,600 | $129,000 | $129,000 | Tie |
| 5. Smaller role | $60,000 | 7.65% | $0 | $75 | 1,000 | $64,590 | $75,000 | Employee, $10,410 |
| 6. Flat 7.65% on $200,000 | $200,000 | 7.65% | $0 | $150 | 1,600 | $215,300 | $240,000 | Employee, $24,700 |
| 6b. Wage base applied | $200,000 | 7.1695% | $0 | $150 | 1,600 | $214,339 | $240,000 | Employee, $25,661 |
| 7. Clean tie | $80,000 | 25% | $0 | $100 | 1,000 | $100,000 | $100,000 | Tie |
| 8. Short contract | $75,000 | 20% | $18,000 | $95 | 600 | $108,000 | $57,000 | Contractor, $51,000 |
| 9. Burden cut to 15% | $90,000 | 15% | $12,000 | $80 | 1,600 | $115,500 | $128,000 | Employee, $12,500 |
| 10. Laptop in the rate | $90,000 | 30% | $12,000 | $81.50 | 1,600 | $129,000 | $130,400 | Employee, $1,400 |
Row 6 is the common mistake. Row 6b is the same salary with the 2026 wage base applied by hand. Row 10 is the laptop moved onto the contractor rate.
The neighboring calculators start from different boxes
The employee true cost calculator does not have a contractor side. Its default is a $90,000 salary, payroll and benefits at 24%, equipment $6,500, workspace $12,000, and annualized hiring $5,000.
90,000 × 1.24 = $111,600
111,600 + 6,500 + 12,000 + 5,000 = $135,100
That is $6,100 above the $129,000 in Example 1, mostly because hiring cost is its own box and the 24% is not the 30%. Per month the page shows $11,258.33. Cost above salary is $45,100. Do not paste the 30% into that 24% box and expect Example 1 again.
The employer payroll cost calculator defaults to a $72,000 salary, employer charges at 10%, benefits $12,000, and equipment $5,000.
72,000 × 0.10 = $7,200
72,000 + 7,200 + 12,000 + 5,000 = $96,200
The 10% is another rate you type. On $72,000, which is under the wage base, employer FICA alone would be 72,000 × 0.0765 = $5,508, not $7,200. The extra $1,692 inside that 10% is whatever else you meant by employer charges.
The salary versus freelance equivalent calculator runs the question the other way. What revenue replaces a salary? Its default salary is $80,000, benefits 18%, freelance overhead $15,000, 1,150 billable hours, and a 12% buffer.
80,000 × 1.18 = $94,400
94,400 + 15,000 = $109,400
109,400 × 1.12 = $122,528
The hourly line is 122,528 / 1,150 = $106.55. That $106.55 is a revenue target for the person doing the work, not the cost a company pays a contractor. The draw versus salary post is the tax on the money after it leaves the business. The salary to hourly post converts a paycheck. It does not add a burden percent.
Open the contractor versus employee calculator and replace the 30% with the percent you can point at, including 7.65% when the only extra is employer FICA under the wage base. Then put the laptop on the side that buys it.