Employee vs Contractor Cost Calculator

Employee vs. independent contractor classification has major financial implications for both the hiring company and the worker. The total cost of an employee significantly exceeds their base salary due to mandatory employer contributions, benefits, overhead, and compliance costs.

Total employee cost formula:

True Employee Cost = Salary + Mandatory Payroll Costs + Benefits + Overhead

Mandatory employer payroll costs (U.S. 2026):

• Social Security: 6.2% of wages, up to the $184,500 wage base
• Medicare: 1.45% of all wages (no cap)
• Federal Unemployment (FUTA): 0.6% on first $7,000
• State Unemployment (SUTA): 1–5% on first $7,000–$45,000 (varies by state)
• Workers’ Compensation: 0.5–4% of payroll (industry dependent)
• Total mandatory burden: ~10–12% of salary, and it shrinks as pay rises, because Social Security and both unemployment taxes stop at their wage bases while salary keeps going

Benefits cost (full-time U.S. employee average 2024):

• Health insurance contribution: $7,000–$12,000/year (employer share)
• Dental + vision: $500–$2,000/year
• Paid time off (15 days): ~5.8% of salary
• 401(k) match (3%): 3% of salary
• Total benefits: ~$15,000–$25,000/year

Overhead per employee:

• Office space: $5,000–$15,000/year (metropolitan areas)
• Equipment, software, IT support: $2,000–$8,000/year
• HR, onboarding, training: $1,000–$5,000/year

Contractor comparison:

Contractor costs = hourly rate × hours worked. No benefits, no payroll taxes, no overhead. Contractors invoice and handle their own taxes.

Worked example:

$75,000 salaried software developer, benefits at 24% of salary, vs. a contractor at $65/hour for 40 hours a week and 50 weeks:
Employee true cost = $75,000 + $5,738 (FICA) + $492 (federal and state unemployment) + $18,000 (benefits) = $99,230/year
Contractor cost at 2,000 hours = $65 × 2,000 = $130,000/year

Those are the figures the calculator above returns. Workers’ compensation is left out of them, so a trade with a high comp rate should fold it into the benefits percentage.

In this case the employee is cheaper, but contractors offer flexibility, require no benefits, and can be released without severance. The break-even point is typically around 70–75% of contractor rate when calculating total employee burden.