Contractor vs Employee Salary Calculator: What You Actually Take Home

Three Offers, Worked Out

Each card takes a common W-2 salary through the same calculation the tool above runs, on identical assumptions: a 4% 401(k) match, $7,000 of employer health insurance, $3,000 of business expenses, and 48 billable weeks a year.

Notice the direction of travel: the markup shrinks as the salary grows, from 36% on the $75,000 job to 30% on the $130,000 one. Health insurance and business expenses are close to fixed costs, so they weigh far more heavily on a smaller salary. Junior contractors need the bigger percentage bump, not the smaller one.

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.

Break-Even Rate by Salary: W-2 Total Comp vs 1099 Equivalent

The full picture across common salaries, all on the baseline above. “Total W-2 value” is base pay plus the match plus employer health premiums — the number the offer is really worth. “Billings needed” adds business expenses and the extra self-employment tax on top, and the break-even rate divides that over 1,920 billable hours.

The markup runs from +44% at $50,000 down to +26% at $200,000, which is why a flat “charge 1.5×” rule of thumb overshoots at the top of the range and undershoots at the bottom. Richer benefits or fewer billable weeks push every row higher. Already have a rate and want the salary it implies instead? The hourly to annual salary calculator runs the conversion the other way.

Self-Employment Tax, in Plain Numbers

Self-employment tax is the single line item that surprises new contractors, because on a W-2 it was invisible. Social Security and Medicare cost 15.3% of earnings in total — 12.4% for Social Security plus 2.9% for Medicare. An employee pays half (7.65%) and the employer quietly pays the other half. A contractor is both parties, so the whole 15.3% is theirs, charged on 92.35% of net earnings.

The part that actually changes your rate is only the employer half you newly owe: about 7.06% of earnings once the 92.35% adjustment is applied. On the $90,000 scenario above that is $7,319 a year — $3.81 of every billable hour going somewhere it never went before. Three details soften or sharpen it:

• Half is deductible.You deduct the employer-equivalent half of self-employment tax against your income tax, so the true after-tax cost is smaller than the headline — but it is a deduction, not a refund.
• Social Security stops; Medicare doesn't. The 12.4% Social Security piece applies only up to the 2026 wage base of $184,500. Above that only the 2.9% Medicare piece continues, plus an extra 0.9% above $200,000 single or $250,000 filing jointly.
• Nobody withholds it.Client payments arrive gross, and the IRS expects quarterly estimated payments instead. A salaried paycheck has already had its tax removed — the semi-monthly paycheck calculator shows what that net check would have been, which is the number an invoice has to beat after you set tax aside.

Because it is a cost rather than a discount, self-employment tax belongs in the rate you quote, not in the margin you hope to keep. If naming a bigger number out loud is the hard part, the framing in how to ask for a raise transfers directly: anchor on what the work is worth and on the costs you carry, not on what the old salary implied.

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