How to use the 1099 contractor vs w-2 employee pay calculator
- Enter the contractor side: the hourly rate, the hours you work each week and the number of weeks you expect to bill. Weeks off and gaps between contracts are not paid, so count only billed weeks.
- Add what a contractor pays that an employee does not: the extra payroll tax percent, business expenses for the year and the health insurance you buy yourself each month.
- Enter the employee side: the hourly wage, hours per week, the paid weeks per year (include paid time off and holidays), the yearly value of employer-paid benefits and the premium you pay each month.
- Read the value of each option per year and per hour worked, and the hourly contractor rate that would match the employee job.
Formula
Contractor value = rate x hours x weeks x (1 - extra payroll tax %) - business expenses - insurance x 12
Employee value = wage x hours x paid weeks + employer-paid benefits - premium x 12
Matching rate = (employee value + expenses + insurance x 12) / (hours x weeks x (1 - tax %))
Both values are before income tax. Value per hour worked divides each total by the hours actually worked, which makes the paid weeks of an employee job visible.
A $70 contractor rate against a $45 wage
A contractor bills $70 an hour for 40 hours a week over 48 weeks, which is $134,400. With 7.5% extra payroll tax ($10,080), $3,000 of business expenses and $600 a month for health insurance ($7,200), the contractor keeps $114,120 before income tax.
The employee job pays $45 an hour for 40 hours over 52 paid weeks, which is $93,600. Adding $9,000 of employer-paid benefits and subtracting a $200 monthly premium ($2,400) gives $100,200. Contractor work is ahead by $13,920 a year. Per hour worked that is $59.44 against $48.17, and a contractor rate of $62.16 would match the employee job.
Why an hourly rate is not the whole story
A contractor rate looks high next to a wage because it has to cover things an employer usually pays: the employer side of payroll taxes, insurance, equipment, software and every unpaid week. The comparison only means something when both sides are measured over a full year.
Paid time off is the other big gap. A full-time employee is paid for weeks without working. A contractor is not. That is why this tool asks for billed weeks on one side and paid weeks on the other.
What the tool leaves out
Income tax is not modeled, because it depends on your state, filing status and deductions. A contractor may deduct business expenses, and an employee may have pre-tax benefits. Ask a tax professional how that changes the result for you.
Job security, steady hours, retirement plans and unemployment coverage have value that is hard to price. If you want to compare other parts of two offers, try the job offer comparison calculator, and to see what an employer pays for a worker, use the employee cost calculator.
Assumptions and limits
- The extra payroll tax percent is an example you can change. Use the figure your tax professional gives you.
- Both sides are shown before income tax, and income tax differences are not modeled.
- Hours and weeks stay the same all year, with no overtime and no unpaid gaps beyond the weeks you leave out.
- Rules about who counts as a contractor and who counts as an employee vary by state, employer and contract. This is not legal or payroll advice.
Frequently asked questions
How do I compare a 1099 rate with a W-2 wage?
Turn each into a full-year value. For the contractor, subtract extra payroll tax, expenses and insurance from the billings. For the employee, add the value of benefits and subtract your premiums. Then compare the totals or the value per hour worked.
What hourly rate does a contractor need to match an employee wage?
The matching rate on this page solves for it. It adds the contractor costs to the employee value and divides by the billed hours after the extra payroll tax. With the numbers above it is $62.16 against a $45 wage.
Why are billed weeks and paid weeks different fields?
An employee is paid for holidays and time off, so paid weeks can be 52 even when fewer weeks are worked. A contractor is paid only for weeks with billable work, so a fully booked year can still be 48 weeks.
Does this include income tax?
No. Both results are before income tax, because the amount depends on your state, deductions and filing status. Use the result to compare pay and costs, and ask a tax professional about the tax side.