What inputs does the Contractor vs Employee Calculator need?

It takes 10 inputs: annual_salary, contractor_hourly_rate, annual_hours (default 2080), employer_fica_rate_percent (default 7.65), futa_annual (default 42), state_unemployment_annual (default 420), health_insurance_annual (default 7000), retirement_match_rate_percent (default 3), workers_comp_rate_percent (default 1), training_equipment_annual (default 2000). Outputs returned: w2TotalAnnualCost, contractorAnnualCost, w2HiddenCosts, breakEvenContractorHourlyRate, annualCostDelta / monthlyCostDelta / cheaperOption / breakdown.

Can I verify the Contractor vs Employee Calculator with a worked example?

Yes. With annual_salary = $100,000, contractor_hourly_rate = $75/hr, annual_hours = 2080, all employer costs at defaults. the tool returns w2TotalAnnualCost = $121,112, contractorAnnualCost = $156,000, w2HiddenCosts = $21,112, breakEvenContractorHourlyRate = $58.23, cheaperOption = w2_employee.

Where does the Contractor vs Employee Calculator get its benchmark data?

Reference data is sourced from: US IRS — Independent Contractor (Self-Employed) or Employee? (as of 2024); US BLS Employer Costs for Employee Compensation (ECEC) (as of 2024).

What can the Contractor vs Employee Calculator not tell me?

Known limitations: The ABC test (California AB5, and similar state statutes) imposes stricter classification than federal common-law. The tool does not evaluate jurisdictional tests. Contractors typically charge a premium to cover their own taxes and benefits; hour-for-hour comparisons understate that premium.

Methodology: Contractor vs Employee Calculator

1. Scope

Compares the fully-loaded annual cost of filling a role as a W-2 employee versus a 1099 contractor at a given hourly rate. US-only defaults. Not legal advice — classification is governed by IRS and state tests the tool does not evaluate.

2. Inputs and outputs

Inputs

annual_salary number (currency/year)
contractor_hourly_rate number (currency)
annual_hours number default: 2080
employer_fica_rate_percent percent default: 7.65
futa_annual number (currency) default: 42
state_unemployment_annual number (currency) default: 420
health_insurance_annual number (currency) default: 7000
retirement_match_rate_percent percent default: 3
workers_comp_rate_percent percent default: 1
training_equipment_annual number (currency) default: 2000

Outputs

w2TotalAnnualCost

salary + FICA + FUTA + state UI + workers comp + health + 401(k) match + training/equipment.
contractorAnnualCost

contractor_hourly_rate × annual_hours.
w2HiddenCosts

w2TotalAnnualCost − salary.
breakEvenContractorHourlyRate

w2TotalAnnualCost / annual_hours.
annualCostDelta / monthlyCostDelta / cheaperOption / breakdown

Contractor minus W-2 cost, and which option is cheaper.

Engine source: src/lib/contractor-vs-employee-calculator/engine.ts

3. Formula / scoring logic

w2_total = salary + salary*fica% + futa + state_ui + salary*wc% + health + salary*match% + training
contractor_total = contractor_hourly_rate * annual_hours
breakeven_rate   = w2_total / annual_hours

4. Assumptions

Employer costs are itemized (FICA, FUTA, state UI, workers comp, health, 401(k) match, training) — there is no single benefits-percent input.
Assumes correct IRS common-law classification. Mis-classification exposes the payer to back-taxes and penalties.
Contractor rate is the gross billable rate; the tool does not model contractor-side self-employment tax or benefits.

5. Data sources

US IRS — Independent Contractor (Self-Employed) or Employee? as of 2024
US BLS Employer Costs for Employee Compensation (ECEC) as of 2024

6. Known limitations

The ABC test (California AB5, and similar state statutes) imposes stricter classification than federal common-law. The tool does not evaluate jurisdictional tests.
Contractors typically charge a premium to cover their own taxes and benefits; hour-for-hour comparisons understate that premium.

7. Reproducibility

Input
annual_salary = $100,000, contractor_hourly_rate = $75/hr, annual_hours = 2080, all employer costs at defaults.

Expected output
w2TotalAnnualCost = $121,112, contractorAnnualCost = $156,000, w2HiddenCosts = $21,112, breakEvenContractorHourlyRate = $58.23, cheaperOption = w2_employee.

8. Change log

2026-04-24 methodology page first published.

Worked example

Run live against the same engine this site ships (/engines/contractor-vs-employee-calculator.js). The inputs and outputs below are recomputed on every build and independently re-verified in CI — they are never hand-authored.

Input

tool: contractor_vs_employee
annual_salary: 85000
contractor_hourly_rate: 70
annual_hours: 2080
employer_fica_rate_percent: 7.65
futa_annual: 42
state_unemployment_annual: 420
health_insurance_annual: 7000
retirement_match_rate_percent: 3
workers_comp_rate_percent: 1
training_equipment_annual: 2000

Output

annualSalary: 85000
contractorHourlyRate: 70
annualHours: 2080
w2TotalAnnualCost: 104364.5
contractorAnnualCost: 145600
w2HiddenCosts: 19364.5
breakEvenContractorHourlyRate: 50.18
annualCostDelta: 41235.5
monthlyCostDelta: 3436.29
cheaperOption: w2_employee
breakdown[0].label: Base salary
breakdown[0].amount: 85000
breakdown[0].category: Salary
breakdown[1].label: Employer FICA
breakdown[1].amount: 6502.5
breakdown[1].category: Taxes
breakdown[2].label: FUTA
breakdown[2].amount: 42
breakdown[2].category: Taxes
breakdown[3].label: State unemployment
breakdown[3].amount: 420
breakdown[3].category: Taxes
breakdown[4].label: Workers comp
breakdown[4].amount: 850
breakdown[4].category: Taxes
breakdown[5].label: Health insurance
breakdown[5].amount: 7000
breakdown[5].category: Benefits
breakdown[6].label: 401(k) match
breakdown[6].amount: 2550
breakdown[6].category: Benefits
breakdown[7].label: Training & equipment
breakdown[7].amount: 2000
breakdown[7].category: Overhead

Frequently asked questions

What does the Contractor vs Employee Calculator calculate?: Compares the fully-loaded annual cost of filling a role as a W-2 employee versus a 1099 contractor at a given hourly rate. US-only defaults. Not legal advice — classification is governed by IRS and state tests the tool does not evaluate.
What inputs does the Contractor vs Employee Calculator need?: It takes 10 inputs: annual_salary, contractor_hourly_rate, annual_hours (default 2080), employer_fica_rate_percent (default 7.65), futa_annual (default 42), state_unemployment_annual (default 420), health_insurance_annual (default 7000), retirement_match_rate_percent (default 3), workers_comp_rate_percent (default 1), training_equipment_annual (default 2000). Outputs returned: w2TotalAnnualCost, contractorAnnualCost, w2HiddenCosts, breakEvenContractorHourlyRate, annualCostDelta / monthlyCostDelta / cheaperOption / breakdown.
What formula does the Contractor vs Employee Calculator use?: The exact computation is: w2_total = salary + salary*fica% + futa + state_ui + salary*wc% + health + salary*match% + training; contractor_total = contractor_hourly_rate * annual_hours; breakeven_rate = w2_total / annual_hours
Can I verify the Contractor vs Employee Calculator with a worked example?: Yes. With annual_salary = $100,000, contractor_hourly_rate = $75/hr, annual_hours = 2080, all employer costs at defaults. the tool returns w2TotalAnnualCost = $121,112, contractorAnnualCost = $156,000, w2HiddenCosts = $21,112, breakEvenContractorHourlyRate = $58.23, cheaperOption = w2_employee.
Where does the Contractor vs Employee Calculator get its benchmark data?: Reference data is sourced from: US IRS — Independent Contractor (Self-Employed) or Employee? (as of 2024); US BLS Employer Costs for Employee Compensation (ECEC) (as of 2024).
What can the Contractor vs Employee Calculator not tell me?: Known limitations: The ABC test (California AB5, and similar state statutes) imposes stricter classification than federal common-law. The tool does not evaluate jurisdictional tests. Contractors typically charge a premium to cover their own taxes and benefits; hour-for-hour comparisons understate that premium.