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.
Employer comparing total cost of hiring? Use the Contractor vs Employee Cost Calculator instead.
Calculate your minimum contractor rate →
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%): ~$10,040 — the employer FICA share you now pay yourself
- Health insurance: ~$9,000 — your employer used to cover 70–80% of this
- Unpaid time off: ~$8,654 — 20 days you don't bill but also don't earn
- Business overhead: ~$5,000 — software, equipment, accounting, insurance
- Net income: ~$98,556 — 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 (~$98,556) vs salary total compensation ($110,000). In this example, the salary is worth ~$11,444 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.
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.
Related tools and guides
- Contractor Rate Calculator Calculate your minimum hourly rate from a target income
- 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.
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.