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Contractor Rate Calculator
Determine fair contractor rates compared to W2 employment, accounting for self-employment taxes and business expenses.
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Try an Example
Pick a scenario to see how the calculator works, then adjust the values
Software Engineer
Convert a $120,000 annual software engineer salary to hourly rate with standard benefits
Key values: $120,000/yr · 8 hr/day · 15 PTO days · 10 holidays
Teacher
Convert a $55,000 annual teacher salary to hourly rate with school schedule
Key values: $55,000/yr · 7.5 hr/day · 10 PTO days · 15 holidays
Hourly to Salary
Convert a $25/hour wage to see the equivalent annual salary
Key values: $25/hr · 8 hr/day · 5 days/week · 10 PTO days
W-2 Employee vs. 1099 Contractor
| W-2 Employee | 1099 Contractor | |
|---|---|---|
| FICA taxes | 7.65% (employer pays other half) | 15.3% (pays both halves) |
| Health insurance | Employer subsidized | Self-funded ($5K–$15K/yr) |
| Retirement | 401(k) with match | Self-funded (SEP-IRA, Solo 401k) |
| PTO | Paid (10–25 days/yr) | Unpaid — no work = no pay |
| Equipment | Employer provides | Self-provided |
| Liability insurance | Not needed | Often required ($500–$2K/yr) |
The Overhead Multiplier
To earn the same effective compensation as a W-2 employee, a contractor must charge a premium to cover the costs the employer no longer pays:
A commonly used multiplier is 1.3–1.5×:
| Overhead item | Annual cost | % of $80K salary |
|---|---|---|
| Extra FICA (7.65%) | $6,120 | 7.65% |
| Health insurance | $8,000 | 10% |
| PTO equivalent (3 weeks) | $4,615 | 5.8% |
| Equipment & software | $2,000 | 2.5% |
| Retirement (no match) | $3,200 | 4% |
| Liability insurance | $1,000 | 1.25% |
| Total overhead | ~31% | |
An $80K salary ÷ 2,080 hours = $38.46/hr. With 1.3× multiplier: .
Self-Employment Tax
Contractors pay both halves of FICA:
The 92.35% factor is a deduction for the employer-equivalent portion. You can also deduct half of the SE tax from your adjusted gross income, reducing your income tax.
Billable vs. Total Hours
Not all hours are billable. Marketing, invoicing, bookkeeping, and finding new clients are unpaid. A realistic billable utilization rate is 60–75%. If you want to earn $100K/year working 2,080 hours but only 70% are billable:
Frequently Asked Questions
How much more should a contractor charge compared to an equivalent salary?
A contractor should typically charge 1.3-1.5 times the W-2 equivalent hourly rate. This multiplier covers the extra FICA taxes (7.65%), self-funded health insurance ($5,000-$15,000/yr), retirement contributions, equipment costs, unpaid time off, and liability insurance that an employer would otherwise provide.
What is the self-employment tax rate for contractors?
Self-employment tax is 15.3% of net earnings ( Social Security + Medicare), applied to 92.35% of net income. This is because contractors pay both the employee and employer portions of FICA. Half of the SE tax is deductible from adjusted gross income.
What are billable hours and how do they affect my rate?
Billable hours are the hours you can charge to clients. Non-billable time includes marketing, invoicing, bookkeeping, and finding new clients. A realistic billable utilization rate is 60-75%. If you want to earn $100,000/yr working 2,080 total hours at 70% utilization, your rate should be about \\$68.68/\text{hr}.
What expenses should I factor into my contractor rate?
Key expenses include self-employment tax (extra 7.65% FICA), health insurance ($5,000-$15,000/yr), retirement savings (no employer match), equipment and software ($1,000-$3,000/yr), liability insurance ($500-$2,000/yr), accounting fees, and the cost of unpaid vacation and sick days.
Is it better to be a W-2 employee or a 1099 contractor?
Each has trade-offs. W-2 employees get employer-paid benefits, employment protections, and simpler taxes. Contractors get higher gross pay, tax deductions for business expenses, schedule flexibility, and the ability to work for multiple clients. Calculate total compensation for both to make an informed comparison.
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