Operations
Contractor vs Employee Calculator
Compare the same role as W-2 or 1099 and find the true annual cost break-even point.
Result
Under current assumptions, W-2 employee is cheaper.
W-2 payroll taxes and insurance
| Social Security | 6.2% of $85,000 | $5,270 |
| Medicare | 1.45% of $85,000 | $1,233 |
| Federal unemployment (FUTA) | 0.6% of $7,000 | $42 |
| State unemployment (SUTA) | 2.7% of $7,000 | $189 |
| Workers' compensation (insurance) | 1% of $85,000 | $850 |
Annual cost comparison
W-2 loaded cost vs 1099 cost vs hidden W-2 burden (payroll taxes + workers' comp + benefits + overhead).
How to use it
- Enter the W-2 annual salary, contractor hourly rate, annual hours, the employer payroll tax rates and wage bases (the same fields and US 2026 defaults as the employee cost calculator; set your state's unemployment rate and wage base), workers comp insurance, benefits, and training or equipment costs. The goal is to compare the same workload on identical hours, not compare a full-time employee with a part-time contractor.
- Read W-2 total annual cost, contractor annual cost, W-2 hidden costs, annual and monthly delta, cheaper option, and the break-even contractor hourly rate. If the contractor rate is above that break-even hourly number, the employee is cheaper strictly on cost.
- Interpret the delta in context. When the contractor is only 5-10% more expensive, flexibility and variable commitment may justify the premium; when the contractor is 20% or more above the W-2 path for steady full-year work, the employee route usually wins financially.
- Use the result to choose hiring structure, set approval thresholds, and anchor rate negotiations. Then layer in the non-calculator factors that matter just as much: ramp time, control, continuity, and classification risk.
- Re-run when contractor rates, benefits, or expected annual hours change. Track the break-even hourly rate over time because wage inflation and benefit changes can move the crossover point faster than teams expect.
Questions people usually ask
What does this calculator compare?
It compares the same role as a W-2 employee versus a 1099 contractor and shows total annual cost for each option.
What hidden costs are included for W-2?
Employer payroll taxes on their wage bases, the same model as the Employee Cost Calculator: Social Security 6.2% up to the 2026 base of $184,500, Medicare 1.45% with no cap, federal unemployment 0.6% of the first $7,000 ($42) and state unemployment at your state's rate on its wage base (default 2.7% of the first $7,000, an assumption). Then workers' compensation insurance (not a tax), health insurance, the 401(k) match and training/equipment. On the defaults, an $85,000 salary costs $104,133.50 a year as a W-2 hire, so the break-even contractor rate is $50.06 an hour at 2,080 hours.
How is break-even hourly rate calculated?
Break-even hourly rate is W-2 total annual cost divided by annual hours needed. Above that rate, W-2 is cheaper; below it, 1099 is cheaper.
Is this tool free and private?
Yes. AI Biz Hub tools are free, no-signup browser tools. Inputs stay in your browser unless you choose to share a URL.
Is this professional advice?
No. Outputs are business planning estimates only — not legal, tax, HR, or accounting advice.
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Articles
- 11 min read Contractor vs Employee for a Solo Founder: 2026 Math
Contractor vs employee, decided honestly: when IRS reclassification risk, flexibility, and continuity override the cheaper structure for solo founders.
- 9 min read FTE vs Contractor: The Real Cost of a $90k Hire
FTE vs contractor cost in 2026: a $90k employee costs about $111k loaded with FICA, health and a 3% match, close to a $60/hr contractor. Hours decide.
- 7 min read How to Decide: Hire or Contract?
How to decide whether to hire or contract: the IRS and DOL classification tests first, then loaded cost (about 1.3× base) and how stable the scope is.
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Use it from an agent or code
Any agent can run this calculator by URL: put the inputs in the query string and get JSON back, with the inputs that used defaults and a line to cite (add format=md for markdown). MCP clients reach it through https://aibizhub.io/mcp.
https://aibizhub.io/api/run/contractor-vs-employee-calculator
In code, import the same module; it runs where you import it, with no request or key.
import { compute } from "https://aibizhub.io/engines/contractor-vs-employee-calculator.js";Input and output contract, TypeScript types and the guide for agents.