Which hiring model is cheaper for me?. The Contractor vs Employee Cost Calculator takes employee annual salary, employee benefits, taxes and overhead, productive hours needed per year, contractor hourly rate and returns contractor cost minus employee cost plus cheaper option, employee total cost, employee cost per productive hour, contractor total cost. Results update as you type, and the formula is shown under the result so you can repeat it in your own spreadsheet.
Payroll figures should follow the rules in your contracts and local law. Where a rule differs between states or countries, adjust the inputs; the calculator shows its assumptions so you can check them against your own policy. Use the worked example below to check the maths against your own figures.
How the Contractor vs Employee Cost Calculator works
Contractors cost more per hour but nothing when there is no work. For a full year of steady work the employee usually wins; for a project or a variable workload the contractor does.
Worked example
With the example values (employee annual salary of $60,000, employee benefits, taxes and overhead of 30%, productive hours needed per year of 1800 hours, contractor hourly rate of $45), the contractor cost minus employee cost is $3,000.00; cheaper option Employee is cheaper for this workload, employee total cost $78,000.00, employee cost per productive hour $43.33, contractor total cost $81,000.00. Change any figure above and the result updates immediately; use Copy results to paste the summary into a note or email.
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Frequently Asked Questions
How is contractor cost minus employee cost calculated?
employee cost = salary × (1 + overhead %); contractor cost = hourly rate × hours.
Which figures do I need?
Employee annual salary, employee benefits, taxes and overhead, productive hours needed per year, contractor hourly rate. Take them from the same period and the same set of accounts or reports so the ratio is consistent, and check the example values as a guide to the units expected.
Do the rules differ by location?
Yes. Statutory rates, ceilings and eligibility conditions vary by country and often by state. Adjust the inputs to your jurisdiction and confirm with your payroll provider or labour law adviser.
