By Priya Raman, payroll tax and worker classification
See the real all-in cost on both sides of the 1099 vs W-2 decision, before you make it.
This is a planning estimate. Your actual payroll tax rate and benefit cost will differ by state and plan.
Start from the calculator's own defaults: a $60,000 salary, benefits priced at 25% of salary, a contractor billing $65 an hour, and 1,500 contractor hours in a year.
At these numbers the employee is cheaper by $8,510 a year, even though a $65 hourly rate looks modest next to a $60,000 salary. Push the contractor's hours toward full-time, or drop the rate, and the answer flips. That crossover is exactly what this calculator finds for your own numbers.
| Assumption | Value used here | Where it comes from |
|---|---|---|
| Employer payroll tax add-on | 9.15% of salary | 7.65% employer FICA share per the IRS, plus a working allowance of about 1.5 points for federal and state unemployment insurance |
| Equipment and overhead | Flat $8,500 a year | A desk-based role's typical share of software, hardware and office costs. Field and site roles usually run higher |
| Benefits load | Your input, % of salary | Set by you. Employer benefit costs vary widely by plan and by state |
Change the benefits percentage to match your own plan and the numbers above recalculate instantly in the tool.
We build the employee's all-in cost (salary + payroll taxes + benefits + overhead) and compare it to the contractor's rate times annual hours.
All the tools you need to price labor, whether you're the one hiring or the one setting the rate.
A contractor's hourly rate looks expensive next to a salaried employee's effective hourly wage. That comparison is not wrong, it is just incomplete. A contractor billing at $75 per hour can cost less annually than a $60,000 salaried employee once you add employer payroll taxes, health insurance, retirement contributions, workers compensation, and overhead. The math depends on how many hours per year the contractor actually works for you.
Cost is not the only consideration. Employees build institutional knowledge, can be directed day-to-day, and add to long-term team capacity. Contractors offer flexibility and a defined scope without an open-ended commitment. Before you decide, check IRS classification rules: treating someone as a contractor when they meet the legal definition of an employee is a mistake that tends to surface at the worst possible time, usually during an audit.
Often for part-time or project work; employees usually win for full-time ongoing roles.
Payroll taxes, benefits, PTO and most overhead.
The IRS/states penalize treating real employees as contractors, get it right.
No, it's a cost estimate.