Contract vs. Salary Calculator
Compare a contract rate to a salaried offer with all the hidden costs included. Self-employment tax, insurance, PTO, the works.
Why This Matters
A $90/hour contract sounds like $187,200/year. But after self-employment tax, health insurance, lost 401(k) match, and zero PTO, the real value drops to around $130,000. Most people compare gross numbers and get it wrong.
This calculator adds up all 7 hidden costs contractors pay out of pocket. Plug in both numbers and see the real comparison.
The 7 Hidden Costs
1. Self-employment tax (15.3%) on the first $168,600. Your employer used to pay half. Now you pay all of it. 2. Health insurance ($400-2,500/month) depending on individual vs. family. 3. Lost retirement match (3-6% of salary). On $120,000, a 4% match = $4,800/year gone.
4. PTO (15-20 days/year). Every day off is zero income. 5. Equipment and software ($2,000-5,000/year). 6. Liability insurance ($500-2,000/year). 7. Risk premium. Contracts end. Factor in gaps. The rule of thumb: multiply your salary by 1.4-1.6x for your break-even contract rate.
Example: $75/Hour vs. $120K Salary
$75/hour x 2,080 hours = $156,000 gross. Hidden costs: SE tax (-$23,868), health insurance (-$7,200), lost 401(k) match (-$6,240), PTO (-$9,000), equipment (-$3,000), liability (-$1,000). Total hidden costs: -$50,308. Real contract value: $105,692. The $120,000 salary wins by $14,308.
The Quick Rule of Thumb
Multiply the salaried hourly rate by 1.4 to 1.6. That's your break-even contract rate. Below 1.4x, salary wins. Above 1.6x, the contract is probably better.
Example: $120,000 salary = ~$57.70/hour. Multiply by 1.5 and your contract target is ~$86/hour. Below $81/hour (1.4x), the salary almost certainly wins.
When to Choose Contract Anyway
Bridge income. Between roles and need cash flow? A contract beats $0 and fills a resume gap.
Foot in the door. Some companies hire contractors first, then convert to full-time. The short-term hit might be worth the long-term play.
Related Reading
Dive deeper into the full breakdown: Contract vs. Salary: The Math Nobody Does
Frequently Asked Questions
What hourly rate equals my current salary?
Divide your salary by 2,080 (40 hours x 52 weeks) for a rough number. But that's just the starting point. To maintain the same take-home pay, multiply that rate by 1.4-1.6x to cover taxes, insurance, and benefits you'll lose.
What's the tax difference between 1099 and W-2?
The biggest difference is self-employment tax: 15.3% on the first $168,600 of income. As a W-2 employee, your employer pays 7.65% of that. As a 1099 contractor, you pay the full 15.3%. On a $150,000 income, that's an extra $11,475 in taxes.
Should I include benefits in the comparison?
Always. Benefits are compensation. A $120,000 salary with health insurance, 401(k) match, and 20 days PTO is worth $140,000-160,000 in total compensation. Ignoring benefits is the most common mistake people make.
What if the contract has no set end date?
No set end date doesn't mean permanent. Contracts can end with 2 weeks notice (or less). Factor in 1-2 months of unpaid gap time per year when comparing to a salaried role with job security.
How do I negotiate a higher contract rate?
Show the math. Tell the hiring manager: 'Once I account for self-employment tax, insurance, and no PTO, a $75/hour rate nets me less than a $100,000 salary.' Most companies expect contractors to cost more. They've budgeted for it.
When does contract work make more financial sense?
When the rate is 1.5x+ your salary equivalent, when you can deduct significant business expenses, when you want schedule flexibility, or when you're between roles and need income while searching.