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Salary vs Contract Rate Calculator

Enter your salary and benefits, then your contract rate, unpaid weeks, and self-employment overhead to see the equivalent income for each option.

How it is calculated

Both jobs are brought to one yearly figure, assuming a 40-hour week.

billable hours = (52 − unpaid weeks) × 40
factor = 1 + extra cost % ÷ 100
contract equivalent = rate × billable hours ÷ factor
salary equivalent = salary × (1 + benefits % ÷ 100)
rate needed = salary equivalent × factor ÷ billable hours

Salary and rate are in dollars; benefits and the extra cost are percentages. The extra cost is a figure you supply for self-employment tax, your own insurance, retirement and overhead; the tool does not apply any fixed tax rate. Dividing by the factor shrinks the contract income to what is left after those costs. Unpaid weeks must be 0 up to just under 52, and no value can be negative. If the contract rate is higher than the "rate needed", the contract pays more on these assumptions. Taxes on income itself are not modelled.

Worked example

A job pays $90,000 with benefits worth 25%, against a contract at $65 an hour with 6 unpaid weeks and 15% extra cost. Billable weeks = 46, so hours = 46 × 40 = 1,840. Gross contract income = 65 × 1,840 = $119,600; divided by 1.15 it becomes $104,000.00. Salary equivalent = 90,000 × 1.25 = $112,500.00. Rate needed = 112,500 × 1.15 ÷ 1,840 = $70.31 an hour. At $65 the contract falls short by about $5.31 an hour, so the salaried job wins here.

Try this example →

Common mistakes

  • Counting only the headline rate. $65 an hour times 2,080 hours looks like $135,200, but unpaid weeks and extra cost reduce it to $104,000 in this example.
  • Entering the benefits as a dollar amount. The field is a percentage of salary, so a $22,500 benefits package on a $90,000 salary is entered as 25.
  • Leaving the extra cost at 0 because a client pays you gross. Self-employment tax, health insurance and retirement saving still have to come out of the contract rate.
  • Entering vacation weeks as 0 and ignoring gaps between contracts. Weeks without paid work, such as time spent looking for the next client, also count as unpaid weeks.
  • Assuming a 40-hour billed week is guaranteed. The tool uses 40 hours for every working week; if you can bill only 30, divide your rate accordingly before entering it.

About this calculator

Comparing a salaried (W-2) job to a 1099 contract rate is not as simple as comparing the two headline numbers, because a salary typically includes employer-paid benefits — health insurance, retirement matching, paid time off — while a contract rate does not, and a contractor also owes the full 15.3% self-employment tax (Social Security and Medicare) instead of splitting it with an employer.

Contractors also need to account for unpaid weeks between engagements, since a quoted hourly rate only pays out for hours actually billed, unlike a salary that continues through vacation and holidays. Freelancers and consultants use this kind of comparison when negotiating a contract rate, converting a target salary-equivalent income into the hourly rate that would actually replace it once these gaps and extra costs are priced in.

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