How to compare a contract rate with a salary
A salary is only part of what an employee receives. To compare fairly, a contractor has to replace:
- Health and insurance benefits the employer pays for.
- Retirement matching — free money added to the employee's pension or 401(k).
- Paid time off — contractors are paid only for days they work.
- The employer's share of payroll taxes. In the US a contractor pays the full 15.3% self-employment tax, roughly 7.65% more than an employee. In the UK, Canada and Australia the extra cost depends on how you structure your business; adjust the field accordingly.
The calculator assumes 260 weekdays a year. The contractor works the same days as the employee (minus the paid days off) and is paid only for those days.
The 1.3×–1.5× rule of thumb
A common shortcut is to multiply the salary's hourly equivalent by 1.3 to 1.5. It's a useful sanity check, but the right multiplier depends heavily on how generous the benefits are — which is why this calculator asks for them.