Contractor vs Employee Calculator: 1099 vs W-2
Compare a 1099 hourly rate with a W-2 salary. Calculate your break-even contractor rate after unbillable weeks, benefits and business costs.
Quick answer: With a $100,000 salary target, 40 billable hours a week, 46 billable weeks and 25% overhead, the break-even contractor rate is $72.46 per hour. Your own costs can change that substantially. Use your own numbers below.
The contractor equivalent is before personal income tax. This comparison does not calculate a tax return or decide whether a role legally qualifies as independent contracting.
One-time Decision Pass. Includes the itemized advanced mode and all Plus features for 60 days.
When to use this tool:
- Evaluate distinct job offers
- Assess overhead differences
- Compare true total compensation
How it's Calculated
- Contract Gross = Rate × Hours × Weeks. Unpaid vacation, holidays and bench time are modeled only here, via Weeks/Year.
- True Equivalent = Contract Gross × (1 - Overhead %) - fixed annual costs (advanced mode). Overhead covers only costs not already captured by fewer billable weeks.
- Break-even Hourly Rate = the minimum rate at which the True Equivalent matches the Employee Salary.
- Difference = True Equivalent - Employee Salary.
Key Assumptions
Defaults are example inputs. See methodology and corrections for how to check results, or report an issue.
- The overhead percentage covers additional contractor costs excluding unpaid vacation, holidays, and non-billable weeks (those are captured by 'Weeks/Year'): the employer share of payroll taxes, health insurance, missed retirement matching, and business expenses.
- Compares salary equivalents before personal income tax. Payroll tax thresholds, deductions, state taxes and worker classification require separate evaluation.
Actionable Insights
- Model unpaid vacation, holidays and gaps between assignments through fewer billable weeks, not again in overhead.
- A higher contract rate can still leave a lower salary equivalent. Check the break-even rate and test a less favorable number of billable weeks.
Frequently Asked Questions
There is no universal premium. With 1,840 billable hours and 25% revenue overhead, replacing a $100,000 salary needs $72.46 per hour. That is about 51% above the salary divided by 2,080 scheduled employee hours.
Enter the W-2 annual salary, contractor rate, billable hours and billable weeks. Then include additional contractor costs. Compare the resulting salary equivalent and break-even rate; gross contract revenue alone is not comparable.
Use additional payroll-tax burden, replacement health coverage, lost retirement contributions and business expenses. Exclude unpaid vacation and holidays from overhead: those reduce billable weeks instead.
No. It is your combined estimate of additional costs as a share of contractor revenue. The advanced mode separates percentage assumptions from annual dollar costs. Neither mode is an exact self-employment tax calculation.
It is a starting proxy for the employer portion of US Social Security and Medicare taxes, not an exact extra tax bill. Actual self-employment tax uses a different earnings base, thresholds and deductions. Replace the assumption when you have a more accurate estimate.
Reduce billable weeks. For example, six weeks in total for vacation, holidays and assignment gaps leaves 46 billable weeks. If you also have weekly administrative time, reduce billable hours per week.
No. A staffing agency may employ a contract worker on W-2 payroll. This calculator models independent contracting; adapt the costs to your actual arrangement, and assess legal classification separately.
It means the model gives a lower financial equivalent than the employee salary under your assumptions. Flexibility, experience and other personal priorities may still matter. Test rate and utilization before deciding.
The arithmetic works in a consistent currency, but the examples and payroll terminology are US-oriented. Replace all tax and benefit assumptions with those that apply locally.
What contractor rate replaces a $100,000 salary?
The examples below use 40 billable hours per week and an illustrative 25% revenue overhead, excluding unpaid weeks. They use the same formula as the calculator: salary ÷ (billable hours × billable weeks × (1 − overhead)).
| Billable weeks | Annual billable hours | Break-even rate |
|---|---|---|
| 48 | 1,920 | $69.44/hour |
| 46 | 1,840 | $72.46/hour |
| 44 | 1,760 | $75.76/hour |
Compare a $75/hour contract with a $100,000 job
At 40 hours for 46 weeks, revenue is $138,000. Subtracting 25% leaves a $103,500 salary equivalent before personal income tax. That is $3,500 above the employee salary, not a $38,000 pay increase.
Build your own cost estimate
Ask for the employee health-plan contribution and 401(k) match, estimate your replacement costs, and list accounting, insurance and software expenses. Advanced mode applies percentage costs to contractor revenue and adds fixed annual costs separately. A retirement match entered as a percentage of contractor revenue is a modeling approximation, not the employer plan formula.
Use the PTO value calculator to understand paid leave, and the freelance risk calculator to stress-test your savings runway.
Sources and scope
Examples use US dollars and US workplace terminology. Change the inputs to match your benefits and costs. These are comparison models, not tax-return or payroll calculations.