Payroll vs Contractor Cost Calculator
Compare annual employee payroll cost with contractor fees and estimate loaded employee cost per productive hour. Paid leave is already included in annual salary, so this calculator uses PTO days to reduce productive hours rather than adding the same salary dollars a second time.
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).
Federal employer FICA includes 6.2% Social Security up to the annual wage base plus 1.45% Medicare. FUTA, state unemployment, workers' compensation and other payroll costs vary, so use a payroll-burden estimate that fits your situation.
Total Employee Cash Cost: —
Total Contractor Cost: —
Cost Difference: —
Paid Leave Salary Value (already included in salary): —
Employer Payroll Burden Cost: —
Productive Employee Hours After Paid Leave: —
Loaded Employee Cost / Productive Hour: —
The productive-hour figure starts from 2,080 scheduled hours and subtracts 8 hours per paid-leave day. Adjust the inputs if that baseline does not match the role.
Deciding which model fits an ongoing role? Try the Contractor vs Employee Cost Calculator.
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 productive hour divides modeled annual employer cash cost by estimated productive hours. Annual cash cost in this calculator is salary + employer-paid benefits + the payroll-burden amount. Paid leave reduces productive hours but is not added again on top of salary.
Loaded cost example: $60,000 salary employee
| Component | Amount | Treatment |
|---|---|---|
| Annual salary | $60,000 | Included once |
| Employer-paid benefits | $12,000 | Added to cash cost |
| Payroll burden (10%) | $6,000 | Applied to salary |
| Annual employee cash cost | $78,000 | Salary + benefits + burden |
| Paid leave (20 days) | $4,615 salary value | Already inside salary |
| Productive hours | 1,920 | 2,080 − 160 leave hours |
| Loaded cost / productive hour | $40.63 | $78,000 ÷ 1,920 |
Why this matters: Paid leave can raise cost per productive hour even though it does not create a second salary expense. This distinction keeps annual cash cost and productivity effects separate.
Payroll vs contractor cost: key differences
Employee cost includes fixed annual salary and employer-paid costs, while contractor cost is usually tied more directly to purchased hours or deliverables. That makes workload size an important input, but there is no universal hours threshold where one model becomes cheaper.
What employee payroll cost can include
- Employer Social Security and Medicare: federal employer shares apply to covered wages, with Social Security subject to an annual wage base.
- Unemployment and workers' compensation: amounts vary by jurisdiction, industry and employer experience.
- Employer-paid benefits: health coverage, retirement contributions and other benefits should be entered as actual annual dollars where possible.
- Paid leave: already included in salary, but it reduces available productive hours.
What contractor cost can include
- Hourly or project charges: use the actual quoted rate rather than a universal contractor premium.
- Agency/platform fees: include only fees that actually apply to the engagement.
- Scope and specialist pricing: contractor rates vary with skill, duration, risk and market conditions.
How to calculate your break-even
For a simple hourly contractor comparison, subtract fixed contractor fees from modeled annual employee cash cost and divide the remainder by the contractor rate. With $78,000 employee cash cost, a $70/hour contractor and no fixed fees, the cash-cost break-even is about 1,114 hours. Change any input and the break-even changes.
Compliance note: Paying someone as a contractor does not decide legal status. Review worker-classification rules separately from the cost comparison.
Frequently Asked Questions
What is loaded employee cost per hour?
In this calculator, loaded employee cost per productive hour is annual salary + employer-paid benefits + the modeled payroll burden, divided by estimated productive hours after paid leave. Paid leave is not added again as a separate annual wage cost.
What is the difference between payroll cost and salary?
Salary is one part of employer cost. Employer payroll cost can also include employer Social Security and Medicare, unemployment taxes, workers' compensation and employer-paid benefits. The exact mix varies by wage level, jurisdiction, industry and benefit plan.
How do I calculate total payroll cost for an employee?
For this planning model, add annual salary + employer-paid benefits + a payroll-burden amount applied to salary. Then use paid-leave days to estimate productive hours separately. For example, $60,000 salary + $12,000 benefits + 10% payroll burden equals $78,000 annual cash cost.
When is a contractor cheaper than a payroll employee?
There is no universal hours threshold. A simple break-even is (employee annual cash cost − fixed contractor fees) ÷ contractor hourly rate. Compare equivalent work and use the actual rate, hours and employer costs for the role.
What employer payroll tax percentage should I use?
Use your actual employer payroll burden when available. For 2026 federal FICA, the employer Social Security share is 6.2% up to the annual wage base and the employer Medicare share is 1.45% without a wage cap. FUTA, state unemployment, workers' compensation and other costs should be added only as applicable.
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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