Employee vs Contractor Cost Calculator

What this tool does

Compares true annual cost of an employee (salary, benefits, payroll tax, overhead) to contractor cost. Shows breakeven hours and hourly equivalent. Rule of thumb: contractor often 1.3 to 1.8x employee equivalent. Informational only; not advice. Not AI-powered.

When to use it

• Deciding whether to hire an employee or use a contractor for a role
• Comparing a contractor quote to the cost of a full-time hire
• Understanding total cost of employment (not just salary)

Inputs explained

• Employee – Salary or hourly, plus benefits %, payroll tax %, overhead %.
• Contractor – Hourly rate and annual hours. No benefits or payroll tax in this tool.

How to use it

1. Enter employee salary (or hourly + hours), benefits, payroll tax, overhead. Enter contractor rate and hours.
2. Click Calculate. Compare total costs and breakeven hours.

Common mistakes

• Underestimating benefits and overhead (20 to 30% on top of salary is common)
• Comparing contractor rate to salary only (employee has benefits and taxes)

Use it with AI

This tool is not AI-powered. It is a calculator. You can use the results with an AI assistant in these ways:

• Paste the comparison and ask for a one-paragraph summary for a decision memo.
• Ask an AI to list 5 factors beyond cost (e.g. IP, availability) when choosing employee vs contractor.
• Use the AI Toolkit and Founder Ops AI Workflow or Vendor Eval Scorecard for hiring and vendor workflows.

Explore the AI Toolkit and Vendor Eval Scorecard for more.

Related tools

• Freelance Rate Calculator
• Break-even Calculator
• SaaS ROI Deal Analyzer

Related glossary terms

• Benefits load
• Payroll tax
• Overhead

FAQ

What is overhead?

Extra costs to support work: software, equipment, desk space, management time.

Why 1.3 to 1.8x for contractor?

Rule of thumb. Contractors carry their own benefits and taxes.

Is this binding?

No. Use for ballpark comparison; actual costs vary.