Contract Rate vs Salary Calculator
Compare a contractor hourly rate against a salary offer on equal terms — after self-employment tax, health insurance, unpaid time off, and overhead. See which option puts more money in your pocket.
Which pays more — contract or salary?
Fill in both sides to compare net income. Or fill just one side to convert between rate and salary equivalent.
What salary is equivalent to this contract rate?
Note: This compares net income (what you keep). It does not account for income tax differences, retirement contribution limits, or QBID deductions available to contractors. Consult a tax professional for full after-tax comparison.
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How to compare a contract rate vs salary fairly
The most common mistake is comparing the contract rate × 2,080 hours against the salary number. This overstates contract earnings because it ignores the real costs that reduce take-home pay. The only fair comparison is net income after all costs on both sides.
What the contract side actually nets you
At $75/hr with 1,750 billable hours, your gross revenue is $131,250. But before you spend any of that:
- SE tax extra (7.65%): ~$10,041 — the employer FICA share you now pay yourself
- Health insurance: ~$9,000 — your employer used to cover 70–80% of this
- Unpaid time off: ~$10,096 — 20 days you don't bill but also don't earn
- Business overhead: ~$5,000 — software, equipment, accounting, insurance
- Net income: ~$97,113 — what you actually keep before income tax
What the salary side actually gives you
A $95,000 salary with a standard benefits package worth $15,000 (health insurance contribution + 401k match) represents $110,000 in total compensation. You receive the salary in cash, and your employer absorbs the benefits costs. The equivalent net is the salary itself plus the value of benefits you no longer have to fund.
The comparison that actually matters
Contract net income (~$97,113) vs salary total compensation ($110,000). In this example, the salary is worth ~$12,887 more per year in take-home value — but that gap narrows or reverses if you bill more hours, have lower health insurance costs, or can deduct business expenses to reduce your tax burden further.
Use the calculator above with your specific numbers. Small changes in billable hours or health insurance cost swing the result significantly.
Real example: Is $100/hour better than a $143,000 salary?
This is one of the most common ways people actually phrase this comparison — a specific rate against a specific salary, not a multiplier. Here's how it plays out using the same overhead assumptions as the calculator above (1,750 typical billable hours, $9,000 health insurance, 20 unpaid days, $5,000 overhead, $15,000 in salary benefits):
| Billable hours | Contractor gross | Contractor net | $143k salary + benefits | Who's ahead |
|---|---|---|---|---|
| 1,750 (typical) | $175,000 | ~$134,150 | $158,000 | Salary by ~$23,850 (~15%) |
| ~2,030 (approx. break-even) | $203,000 | ~$157,900 | $158,000 | Roughly even |
| 2,080 (full-time) | $208,000 | ~$162,090 | $158,000 | Contract by ~$4,090 (~3%) |
At a typical contractor workload (1,750 billable hours/year), the $143,000 salary wins. The break-even point is around 2,030 billable hours/year — essentially full-time with almost no unbilled gaps between projects. Only above that does $100/hour start to pull ahead of the $143,000 salary.
Why this surprises people: $100/hour feels like a huge premium over a $143,000 salary — base salary alone works out to about $69/hour at full-time hours, or about $76/hour once you include the $15,000 in employer benefits. But the contractor side has to absorb $9,000 in health insurance, ~$13,400 in extra self-employment tax, and ~$13,500 in unpaid time off before the $100/hour rate becomes spendable net income — which is why the gap closes so much in practice. Run your own numbers in the calculator above; lower health insurance costs or higher billable hours can flip this conclusion.
A second example: $159,000/year contracting vs. a $100,000 salary
This is another way the same comparison shows up in real searches — a contract income and a salary, no hourly rate stated. Converting $159,000/year to an hourly rate at 1,750 billable hours works out to about $90.86/hour — roughly 1.89× the $100,000 salary's hourly equivalent ($48.08/hour at 2,080 hours), which lands just under the "all costs + buffer" 2.0× row in the multiplier table below.
Running that $90.86/hour rate through the same overhead assumptions as above, contractor net income is approximately $120,606. How that compares to the $100,000 salary depends on what the employer's benefits are worth — which the question doesn't specify:
- If benefits are average ($15,000, this calculator's default): salary total compensation is $115,000 — the contract role nets about $5,600/year more (~5%).
- If the salary has no meaningful benefits: the contract role nets about $20,600/year more (~21%) — closely matching the result on the Contractor vs Employee Pay Gap Calculator, which compares the same two numbers directly without converting to an hourly rate.
Why this one tilts toward contracting while the $100/hour-vs-$143,000 example above tilted toward salary: the implied rate here (1.89×) is closer to the "covers everything plus a buffer" end of the multiplier scale, while $100/hour against $143,000 worked out to only about 1.44× — below the typical break-even. The dollar amounts matter less than where the implied multiplier falls.
When the contract rate wins
The contract side wins when one or more of these is true:
- High billable hours: billing 1,900–2,080 hours/year closes the overhead gap significantly
- Low health insurance: if covered by a spouse's plan or buying a low-cost plan, the gap shrinks by $6,000–$15,000
- High overhead deductibility: business expenses are deductible, reducing your effective income tax rate
- Premium rates: specialised contractors often command rates that are 2–3× what an equivalent salary-to-hourly rate would be
- Thin salary benefits: if the salary offer includes minimal benefits (no health insurance, no 401k match), the gap shrinks or disappears
When the salary wins
- Rich benefits package: a salary with full family health coverage worth $20,000+, generous 401k match, and significant PTO adds up fast
- Low billable hours: if you can only bill 1,400 hours/year due to market demand, the math tilts toward employment
- High business overhead: expensive professional tools, liability insurance, or E&O coverage in your field increases costs
- Income gaps: contractors with irregular project pipelines experience unpaid gaps that significantly reduce effective annual income
The contract rate multiplier: what it actually means
You'll often hear that contractors should charge "1.5× to 2× the equivalent salary hourly rate." Here's what each multiplier covers:
| Multiplier | What it covers | When it applies |
|---|---|---|
| 1.0× | Raw salary rate only — covers nothing extra | Never sufficient for contractors |
| 1.25× | SE tax gap only | Only if employer covers health insurance (rare for 1099) |
| 1.5× | SE tax + some overhead, no benefits gap | Contractor covered by spouse's plan, minimal overhead |
| 1.75× | SE tax + health insurance + overhead | Typical for solo contractors with standard overhead |
| 2.0× | All costs + income gap buffer | Recommended for most independent contractors |
| 2.5×+ | Premium/specialist rate above cost parity | High-demand specialists commanding market premium |
The multiplier is a shortcut, not a formula. Use the calculator above with your actual costs for a precise comparison rather than relying on a rule of thumb.
Get the free Employee vs Contractor Risk Report →
Related tools and guides
- Contractor Rate Calculator Calculate your minimum hourly rate from a target income
- Independent Contractor Taxes Estimate your quarterly self-employment tax once you've settled on a rate
- Contractor vs Employee Cost Calculator Compare total employer cost of hiring (employer perspective)
- Payroll vs Contractor Calculator See loaded payroll cost including PTO, taxes and benefits
- Employee vs Contractor Cost Guide Full cost breakdown at every salary level ($40k–$150k)
- How to Classify Workers IRS and ABC test classification criteria explained
Frequently Asked Questions
How do I compare a contract rate to a salary?
Convert both to net annual income. For the contract rate: multiply rate × billable hours, then subtract self-employment tax extra (7.65%), health insurance premiums, unpaid time off cost, and business overhead. For the salary: add the value of employer-provided benefits (health insurance, 401k match). Compare the net figures — not the gross numbers. Use the calculator above for your specific situation.
What is the contract rate vs salary multiplier?
The standard multiplier for converting a salary hourly rate to an equivalent contract rate is 1.5×–2×. The 1.5× floor covers the self-employment tax gap and minimal overhead. The 2× figure accounts for health insurance, unpaid time off, business overhead, and a buffer for income gaps. Most contractors with standard overhead structures need to charge approximately 1.75×–2× the equivalent employee hourly rate to achieve the same net income.
How much more should a contractor earn per hour than an employee?
A contractor needs to earn 25–100% more per hour than an equivalent employee to achieve the same net income. The minimum gap is ~25% (covering only the extra SE tax). A realistic gap accounting for health insurance and basic overhead is 50–75%. The 100%+ end applies when comparing against rich benefits packages (family health coverage worth $20,000+ and generous 401k matching) or when the contractor has high overhead costs.
Is a $75/hr contract rate equivalent to a $100k salary?
At 1,750 billable hours, $75/hr generates $131,250 gross. After typical contractor overhead (~$32,000–$34,000 in SE tax extra, health insurance, unpaid time, and overhead), net income is approximately $97,000–$99,000. A $100,000 salary with a benefits package worth $15,000 represents $115,000 total compensation. So $75/hr nets somewhat less than a $100k salary with good benefits — but is competitive with a $100k salary that has minimal benefits.
Is $100 an hour better than a $143,000 salary?
It depends almost entirely on how many hours you actually bill. At a typical contractor workload (1,750 billable hours/year), a $143,000 salary with a $15,000 benefits package nets about $23,850/year more than $100/hour after self-employment tax, health insurance, and unpaid time off. The break-even is around 2,030 billable hours/year — close to full-time with almost no gaps between projects. Above that, $100/hour starts to pull ahead. Use the calculator above with your specific overhead costs to find your exact crossover point.
Is a $100,000 salary better than a $159,000/year contract role?
Usually not, but it depends on the salary's benefits value, which isn't always stated alongside a number like this. Converting $159,000/year to an hourly rate (about $90.86/hour at 1,750 billable hours) and running it through this calculator's default overhead assumptions nets approximately $120,606 — about $5,600/year (5%) ahead of a $100,000 salary with an average $15,000 benefits package, or about $20,600/year (21%) ahead if the salary has little to no benefits. See the Contractor vs Employee Pay Gap Calculator for the same comparison without the rate conversion.
What costs reduce a contractor's take-home pay?
The main costs that reduce contractor take-home pay are: the extra SE tax (7.65% on top of what employees pay), self-funded health insurance premiums (typically $4,000–$18,000/year depending on plan and family size), unpaid time off (every non-billed day is lost income), annual business overhead (equipment, software, accounting, professional insurance — typically $3,000–$10,000/year), and income gaps between projects. These costs combined typically reduce gross contract revenue by 25–45%.
How do I convert a salary to a contract rate?
Divide the annual salary by 2,080 to get the base hourly rate, then multiply by 1.5×–2× to cover contractor overhead. For a precise figure: add your SE tax extra, health insurance cost, unpaid time off value, and business overhead to the target income, then divide by expected billable hours. The Contractor Rate Calculator does this precisely with your actual numbers.
Educational only: This calculator provides estimates for planning purposes. It is not tax, legal, or financial advice. Consult a qualified tax professional for personalised guidance.