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Ninety thousand salary against 80 an hour
The role pays 90,000. Payroll taxes and benefits add 30 percent. Overhead is 12,000. A contractor quotes 80 an hour for 1,600 hours.
Annual salary: 25% lower
Change annual salary to 67,500 while keeping the other example values the same.
Annual salary: 25% higher
Change annual salary to 112,500 while keeping the other example values the same.
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Quick answer
What does the Contractor vs employee cost calculate?
Does a loaded employee or a contractor cost less for the same work? This calculator uses annual salary, payroll taxes and benefits, employee overhead, contractor hourly rate, and contractor hours / year to estimate same work, two ways to pay immediately in your browser.
With the values currently entered, the result is Contractor — is estimated to cost $1,000.00 less this year. It also shows employee cost, contractor cost, and cost gap.
How to use the Contractor vs employee cost
- Replace the example values with your own numbers.
- Review the result and supporting figures as they update automatically.
- Check the formula and assumptions before using the estimate for a decision.
Inputs used
- Annual salary
- Payroll taxes and benefits — entered in %
- Employee overhead
- Contractor hourly rate — entered in / hr
- Contractor hours / year — entered in hrs
Contractor vs employee cost formula
Employee cost = salary × (1 + payroll-and-benefits rate) + overhead. Contractor cost = hourly rate × hours.
Assumptions
- IRS explains when a worker is an employee or an independent contractor. This page only compares the two cost stacks you type.
- Fold contractor tools, software, and management time into the rate if you want them in the contractor total.
Verify the inputs
Authoritative sources
These sources explain the definitions, factors, or rules behind this tool. Their geographic scope is shown because an official source for one country is not automatically valid somewhere else.
Explains when a worker is an employee or an independent contractor. Classification follows facts and law, not a cost comparison.
Hire employeesUS Small Business AdministrationScope: US small-business hiring; method is generalWalks through the cost of hiring, including taxes and benefits, and treats those extras as part of what an employee costs.
Publication 15, Circular E, Employer’s Tax GuideUS Internal Revenue ServiceScope: US employer payroll tax; rates are user-editableSplits Social Security (6.2%) and Medicare (1.45%) on wages. Employee and employer each pay 7.65% on wages below the Social Security wage base.
Sources do not endorse Calculum. Check the source date, scope, and your own documents before making a financial, tax, insurance, or reporting decision.
Practical guide
Contractor vs employee cost example and edge cases
An employee costs more than salary. A contractor costs more than the hourly quote if you buy a lot of hours. Put both stacks on the same work and keep the cheaper total.
Example: Ninety thousand salary against 80 an hour
The role pays 90,000. Payroll taxes and benefits add 30 percent. Overhead is 12,000. A contractor quotes 80 an hour for 1,600 hours.
- Annual salary
- 90,000
- Payroll taxes and benefits
- 30 %
- Employee overhead
- 12,000
- Contractor hourly rate
- 80 / hr
- Contractor hours / year
- 1,600 hrs
Calculated resultContractoris estimated to cost $1,000.00 less this year
The employee stack is 129,000. The contractor stack is 128,000. The contractor is 1,000 cheaper in this model. IRS still decides classification. The loaded cost of one hire alone is the employee true cost calculator.
Example results use the default display profile. The calculator above follows your selected country and units.
How to read the result
- Read which path is cheaper, then the two totals. A small gap can flip when hours or benefits move.
- Unused contractor hours never hit the invoice. Unused employee hours still hit payroll.
Edge cases worth checking
The contractor needs a laptop and a seat
Fold those costs into the hourly rate, or the employee overhead box is doing work the contractor side ignores.
The role needs 2,000 hours, not 1,600
Raise contractor hours. An employee salary already covers a full year. Extra contractor hours raise only that stack.
What changes the result most
Annual salary
Use a current amount for annual salary. Include fees or recurring costs that belong in the same figure.
Payroll taxes and benefits
Test a lower and higher payroll taxes and benefits. A small percentage change can move the final result more than expected.
Employee overhead
Use a current amount for employee overhead. Include fees or recurring costs that belong in the same figure.
Try a different scenario
Small changes show whether the answer is stable or sensitive.
Annual salary: 25% lower
67,500Employeeis estimated to cost $28,250.00 less this year
Annual salary: 25% higher
112,500Contractoris estimated to cost $30,250.00 less this year
Payroll taxes and benefits: 25% higher
38 %Contractoris estimated to cost $8,200.00 less this year
Common mistakes
Check annual salary
IRS explains when a worker is an employee or an independent contractor. This page only compares the two cost stacks you type. Make sure this matches the number you enter.
Keep contractor hours / year consistent
Fold contractor tools, software, and management time into the rate if you want them in the contractor total. Use the same units and time period throughout the calculation.
Do not rely on one contractor vs employee cost scenario
Run a cautious case and an optimistic case. The range is often more useful than one exact-looking number.
Use this result well
Does a loaded employee or a contractor cost less for the same work?
It does not replace a quote, contract, accountant, or local employment guidance.