Contractor vs. Employee Salary Calculator
A 1099 contractor usually has to charge 25–50% more than a W-2 salary to break even.
The salary hides employer payroll tax, benefits, and paid time off. Enter your numbers below to see the exact hourly rate that makes contracting pay as well as the job.
Contractor vs. Employee Pay Calculator
Enter a W-2 salary and its benefits, then the costs you'd carry as a 1099 contractor. The tool shows the contractor rate that delivers the same real compensation.
52 minus the weeks you won't bill (unpaid time off, gaps between contracts).
To match this W-2 package, charge at least
$63.57 /hr
≈ $508.56/day · $122,054/yr billed over 1,920 billable hours
That's about 32% more than the salary's straight hourly rate of $48.08/hr.
W-2 Employee — total value
1099 Contractor — must cover
Estimates for comparison only. The self-employment tax adder applies the employer half of FICA (7.65%) to 92.35% of earnings; it ignores the income cap on Social Security, state taxes, the QBI deduction, and the deductible half of self-employment tax. Actual figures vary by income, filing status, and state. Not tax advice.
Why You Can't Compare Salary and Rate Directly
A $100,000 salary divided by 2,080 hours looks like about $48 an hour, so it's tempting to think a $50/hour contract is a raise. It usually isn't. The salary quietly includes things the contract rate has to pay for out of pocket:
- Employer payroll tax. Your employer pays a matching 7.65% of your wages into Social Security and Medicare. As a contractor you pay both halves — the full 15.3% self-employment tax — so that extra 7.65% comes straight out of your rate.
- Benefits. Employer-paid health insurance and a 401(k) match can add several thousand dollars of value a year. A contractor buys their own coverage and funds their own retirement.
- Paid time off. Salaried employees are paid for holidays and vacation. Contractors only earn on hours they bill, so the same target income has to be packed into fewer billable hours — which raises the hourly rate.
- Business expenses.Software, equipment, insurance, and accounting are now your cost, not the company's.
The calculator rolls all of these into a single number: the contractor rate that leaves you exactly as well off as the salaried offer. Charge more and contracting genuinely pays better; charge less and you're taking a pay cut for identical work.
How the Calculation Works
First the tool totals what the W-2 job is really worth: base salary plus the employer's 401(k) match plus employer-paid health insurance. To match that, a contractor must replace the salary, self-fund the same benefits, cover business expenses, and absorb the extra self-employment tax. That gives the annual billings target.
The target is then divided by your billablehours — not a full 2,080-hour year — because a contractor isn't paid for time off or gaps between contracts. Fewer billable hours mean a higher rate. If you want to sanity-check the plain salary-to-hourly math behind the employee side, the salary converter breaks that down with PTO and holidays factored in.
Negotiating From the Right Number
Once you know your break-even rate, treat it as a floor, not a target — the same way a salaried worker shouldn't anchor to their current pay. For framing the conversation and asking with confidence, see how to ask for a raise and the broader salary negotiation guide, which both apply just as well to setting a contract rate as to a full-time offer.
Frequently Asked Questions
How much more should I charge as a contractor vs employee?
As a rough rule, a 1099 contractor needs to charge roughly 25% to 50% more than the equivalent W-2 hourly rate to break even. The gap comes from four things the salary already covered: the employer's half of payroll tax (an extra 7.65% you now pay as self-employment tax), health insurance, retirement contributions, and the fact that you only get paid for hours you actually bill — no paid holidays or PTO. Add business expenses on top. For a $100,000 salary with typical benefits and a few unpaid weeks a year, the equivalent contractor rate lands around $64/hour rather than the straight $48/hour the salary implies — and climbs further if benefits are richer or billable weeks are fewer.
Why is a contractor rate higher than the equivalent salary?
A W-2 salary is more than the cash figure. The employer also pays half of your Social Security and Medicare taxes, often contributes to health insurance and a 401(k) match, and pays you for holidays and vacation. A contractor receives none of that — they must cover every cost out of their billing rate and only earn money on hours they actually work. The contractor rate has to be higher just to land at the same real income.
What is self-employment tax and how does it affect my rate?
Self-employment tax is the full 15.3% Social Security and Medicare tax (12.4% + 2.9%) that the self-employed pay on 92.35% of net earnings. A W-2 employee pays only half of this (7.65%) because the employer covers the other half. As a contractor you pay both halves, so the extra 7.65% is a real cost you must build into your rate. You can deduct half of it on your tax return, which softens the blow but doesn't eliminate it.
Does contractor pay make up for losing benefits?
Only if your rate is set high enough. Use the calculator above to add up the benefits you'd lose — employer health premiums, 401(k) match, paid time off — plus self-employment tax and business expenses, then check whether your contract rate clears that bar. If it does, contracting can pay more because you also gain flexibility and deductible expenses; if it doesn't, you're effectively taking a pay cut for the same work.