Contract vs Salary Calculator
A contract rate that looks huge next to a salary often isn't, once you subtract the taxes, benefits and paid time off a job quietly includes. This compares the two properly, net of all of it, and tells you which actually leaves you better off, plus the exact rate you'd need to break even. Runs entirely in your browser.
The salaried job
The contract / freelance gig
Show the math
Compares structural value before your personal income tax (which applies to both options and depends on your region). Includes the extra self-employment tax unique to contracting. An estimate to inform the decision, not financial advice.
Not sure what rate to put in? Work out your minimum freelance rate first →
How to actually compare a contract rate to a salary
The reason so many people take a contract and end up feeling poorer is that they compared the wrong numbers. A $65/hour rate sounds like $135,000 a year (65 × 2,080). It isn't. Here's the comparison that holds up:
- Build the salary's true value. Take the gross salary and add the cash value of everything the employer pays on top, pension match, health insurance, paid holiday and sick days, the employer half of payroll taxes. That's the number contracting has to beat.
- Build the contract's real income. Rate × hours (or days) you can bill per week × the weeks you actually work. Not 52, contractors don't get paid holidays.
- Subtract what contracting costs. Business expenses, plus the extra self-employment tax you now shoulder that an employer used to split with you.
- Compare the two net figures, and look at the break-even rate to see how much headroom (or shortfall) you actually have.
Why a contract rate has to be much higher than a salary
A salaried employee is paid for roughly 2,080 hours a year and never works all of them on billable output, yet still gets paid for holidays, sick days and the gaps between projects. A contractor is paid only for hours billed, funds their own taxes and tools, and earns nothing while on holiday or between clients. To stand still against a salary, a contractor typically needs a headline rate 40–80% higher than the salary-per-hour figure. Anything less and the "raise" is an illusion.
Frequently asked questions
Is contracting really better paid than a salaried job?
Often yes on paper, but the headline rate is misleading. A contractor loses the employer-paid taxes, pension match, health cover, paid holiday and sick leave that a salary quietly includes, and pays for their own tools and downtime. Once you net all of that out, which this calculator does, the gap is usually much smaller than the raw rate suggests, and sometimes the salary wins.
How do I compare a day rate or hourly rate to an annual salary?
You cannot just multiply the rate by 2,080 hours. Multiply your rate by the hours (or days) you can actually bill per week, then by the weeks you actually work (not 52, subtract your unpaid time off). Then subtract business expenses and the extra self-employment tax you now carry. Compare that net figure to the salary plus the cash value of its benefits. This tool runs that whole calculation for you.
What benefits should I count on the salary side?
Anything the employer pays that you would have to fund yourself as a contractor: pension or 401(k) match, health insurance, paid holiday and sick days, life/disability cover, training budget, and the employer half of payroll taxes. Add up the annual cash value and put it in the "employer benefits" field, leaving it at zero will make a salary look worse than it really is.
What is a break-even rate?
It is the hourly (or daily) rate at which contracting leaves you exactly as well off as the salary, after expenses and self-employment tax. Charge above it and contracting wins; below it and the salary wins. It is the single most useful number when deciding whether a contract offer is worth leaving a job for.
Does this account for income tax?
It compares structural value before your personal income tax, because income tax depends on your country, state and bracket and applies to both options. It does include the extra self-employment / employer-side tax that is unique to contracting, since that is the main structural difference. For an exact take-home figure, run the result through a tax calculator for your region.