Payroll vs Contractor Cost Calculator
Estimate true payroll cost by including PTO and employer payroll taxes, then compare it to contractor fees. Ideal for budgeting and understanding your loaded cost per hour. Estimates only.
Educational only: This tool provides general estimates and is not legal, tax, or accounting advice.
Part of our Employee vs Contractor Guide (true hiring costs, payroll overhead, and misclassification risk).
Tip: If you don’t know payroll tax %, start with a rough estimate (often 10–20%) and adjust based on your jurisdiction and benefits policy.
Total Payroll Cost (Employer): —
Total Contractor Cost: —
Cost Difference: —
PTO Cost: —
Employer Payroll Taxes Cost: —
Loaded Employee Cost / Hour: —
“Loaded employee cost per hour” uses 2,080 hours/year. Adjust your contractor hours to match expected workload.
Deciding which model fits an ongoing role? Try the Contractor vs Employee Cost Calculator.
Get Your Payroll vs Contractor Report
Prefer to read first? Start with the Employee vs Contractor Guide.
Use this calculator to plan budgets, compare employment strategies, and understand the financial impact of hiring employees versus contractors.
What is loaded employee cost per hour?
Loaded employee cost per hour is what an employee actually costs the business per working hour — after adding employer payroll taxes, benefits, and the cost of paid time off on top of base salary. It is almost always significantly higher than the employee's hourly wage.
Loaded cost example: $60,000 salary employee
| Cost Component | Annual Amount | Notes |
|---|---|---|
| Base salary | $60,000 | $28.85/hour base rate |
| Employer FICA (7.65%) | $4,590 | Social Security + Medicare |
| FUTA + SUTA | $420–$1,800 | Federal + state unemployment tax |
| Workers' compensation | $600–$2,400 | 1–4% for office roles; higher for manual |
| Health insurance | $8,000–$15,000 | Employer portion of premium |
| 401k match (4%) | $2,400 | Common: 3–6% of salary |
| PTO cost (20 days) | $4,615 | 20 days × $231/day; reduces productive hours |
| Total loaded cost | $80,625–$90,805 | 34–51% above base salary |
| Loaded cost per hour | $43–$49/hour | Based on 1,840 productive hours (2,080 − 240 PTO/holiday hours) |
Why productive hours matter: A full-time employee works 2,080 scheduled hours/year but delivers ~1,840 productive hours after PTO, holidays, and sick leave. Dividing total cost by productive hours (not scheduled hours) gives a more accurate cost-per-output figure for comparing against contractor hourly rates.
Payroll vs contractor cost: key differences
The core difference is that payroll employees carry fixed overhead costs regardless of output, while contractors are paid only for hours or deliverables delivered. This makes the right choice heavily dependent on how many hours of work you actually need.
What payroll cost includes that contractor cost doesn't
- Employer FICA tax: 7.65% of all wages — mandatory, no exceptions
- Unemployment taxes: FUTA (federal) + SUTA (state) — paid regardless of whether you ever file a claim
- Workers' compensation insurance: required in most states, cost varies significantly by industry
- Benefits: health insurance, dental, vision, 401k match — typically $8,000–$18,000/year per employee
- Paid time off: PTO, sick leave, holidays — you pay salary for days with no work output
- Recruiting and onboarding: one-time cost ($1,000–$5,000) that doesn't apply to contractors
What contractor cost includes that payroll doesn't
- Higher hourly rate: contractors charge 25–100% more per hour than equivalent employee hourly rates to cover their own taxes, benefits, and overhead
- Platform or agency fees: Upwork, Toptal, or staffing agency markups (10–30% above contractor rate)
- Rate variability: specialist contractor rates can exceed $150–$200/hour for high-demand skills
Break-even rule of thumb
For most roles, the break-even between payroll and contractor sits between 1,100 and 1,600 hours per year (roughly 22–31 hours/week average). Below this threshold, contractors are often cheaper — you avoid benefits overhead and only pay for productive time. Above it, payroll employees are almost always more cost-effective at full-time rates.
Compliance note: Paying someone as a "contractor" doesn't automatically make them one. If the relationship is ongoing, controlled, and integrated into your business, misclassification can create back-pay and tax exposure. See misclassification penalties & risks or estimate scenarios with the misclassification cost calculator.
Frequently Asked Questions
What is loaded employee cost per hour?
Loaded employee cost per hour is the true hourly cost of an employee after including salary, employer payroll taxes (FICA 7.65%, FUTA, SUTA, workers' comp), benefits (health insurance, 401k match), and paid time off. For a $60,000 salary employee with $12,000 benefits and 20 PTO days, the loaded cost is typically $43–$49/hour — significantly higher than the base hourly wage of $29/hour. This is the figure to compare against a contractor's hourly rate.
What is the difference between payroll cost and salary?
Salary is what the employee receives. Payroll cost (loaded cost) is what the employer actually pays: salary plus employer FICA (7.65%), FUTA (0.6% on first $7,000), state unemployment tax (0.5–10%), workers' compensation (1–15%), health insurance ($5,000–$15,000/year), 401k match (3–6%), and paid time off. Total payroll cost is typically 30–55% above base salary.
How do I calculate total payroll cost for an employee?
Add together: base salary + employer FICA (salary × 7.65%) + FUTA (~$42/employee/year) + SUTA (salary × state rate, typically 2–3%) + workers' comp (salary × industry rate, 1–15%) + annual benefits (health insurance, 401k match) + PTO cost (daily rate × PTO days). For a $60,000 salary employee this typically totals $80,000–$93,000 annually. Use the calculator above to run your specific numbers.
When is a contractor cheaper than a payroll employee?
A contractor is typically cheaper when you need fewer than 1,200–1,500 hours of work per year. Below this threshold, paying a contractor's higher hourly rate costs less than carrying full payroll overhead year-round. Above this — especially at full-time 2,080 hours/year — employees are almost always more cost-effective. Use the Contractor vs Employee Calculator to find your specific break-even point.
What employer payroll tax percentage should I use?
A typical total employer payroll tax rate is 10–15% of salary. This includes federal FICA (7.65%), FUTA (~0.06% effectively), state unemployment SUTA (0.5–10% depending on state), and workers' compensation (1–15% depending on industry). Start with 12% as a baseline and adjust upward for high-risk industries or high-SUTA states.
Related Calculators & Guides
- Employee vs Contractor Guide
- Contractor vs Employee Cost Calculator
- Misclassification Cost Calculator
- How to Classify Workers
- Contractor Rate Calculator - Convert a target salary to an equivalent contractor hourly rate
- Contract Rate vs Salary - Compare a contract offer vs a salary offer on net income terms