Contractor vs Employee Calculator

How to compare a contract offer against a salary offer

The raw hourly rate of a contract almost always looks bigger than the equivalent hourly pay of a salaried employee — but that’s the wrong comparison. A contractor pays their own tax, their own health insurance, their own retirement, their own gear, and earns nothing on vacation or sick days. An employee gets all of that taken care of by the company, which makes their “real” take-home far larger than their base salary suggests. This calculator makes that invisible gap visible.

The math

contractor_gross   = hourly_rate * hours_per_week * weeks_per_year
contractor_taxable = contractor_gross - annual_expenses
contractor_net     = contractor_taxable * (1 - contractor_tax_rate)

employee_net       = annual_salary * (1 - employee_tax_rate)
employee_total     = employee_net + benefits_value

difference         = contractor_net - employee_total
breakeven_rate     = (employee_total / (1 - contractor_tax_rate) + annual_expenses)
                     / (hours_per_week * weeks_per_year)

Why contractors often underestimate the gap

A common trap: “$80/hour contract beats my $100k salary easily.” It often doesn’t. The salary probably comes with $15,000–$25,000 of employer-paid benefits (health insurance, retirement match, life & disability insurance, bonuses, stock). The contractor pays self-employment tax in the US, Class 2/4 NI in the UK, or equivalent elsewhere — a combined tax rate of 28–35% is typical, vs ~22–28% for an equivalent employee. Finally, the contractor loses 4–6 weeks of income to time off, sick days, and between-gig downtime.

When contract wins

Contract work usually wins financially when the hourly rate is roughly 1.5–2× the employee equivalent, when you can bill 30+ hours/week consistently, when your home country taxes self-employment lightly (Australia, UAE, Singapore), or when you’re structured through a limited company with tax-efficient draws. It also wins on flexibility — multiple clients, remote work, and control of your schedule — which this calculator can’t measure.

When employment wins

Employment usually wins when the benefits package is generous (>20% of salary in value), when the role includes equity or a meaningful bonus, when you have dependents relying on employer-sponsored health coverage, or when you’re in a region with strong statutory protections (EU, UK) where contractor tax advantages are smaller. Employment also wins on stability — one invoice doesn’t disappear overnight.

What this calculator doesn’t model

Stock options, equity vesting, deferred compensation, bonuses that depend on company performance, employer-paid professional development, and the real-world risk of client non-payment. It also doesn’t model region-specific contractor structures (UK limited company + dividends, US LLC taxed as S-corp, Australian sole trader vs Pty Ltd). For decisions with real money on the line, use this as a sanity check and then talk to a licensed accountant.

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