Employee versus contractor maths
A 70,000 salary costs an employer roughly 82,000 once payroll tax, benefits and leave are added. A contractor wanting the same net must charge enough to cover that gap plus unbilled time — typically 1.25–1.45× the equivalent salary rate.
The three additions
Self-employment tax (15.3% on net), overhead (software, insurance, equipment, workspace) and the billable-hours reality (1,200 of 2,080 working hours). Miss any one and the rate looks fine while the bank balance does not.
Pricing beyond the floor
- This rate is your floor, not your price
- Specialised skills command 1.5–3× the commodity rate
- Retainers trade a discount for predictable utilisation
- Raise rates with new clients first, existing ones at renewal
When clients compare to a salary
Show the maths: a 100,000 salary is roughly 50/hour on 2,000 hours, but a contractor billing 1,200 hours needs 83/hour to match it. That single calculation ends most rate arguments.
Frequently Asked Questions
How much more should a contractor charge than an employee earns?
25–45% more per hour to match total compensation, more if billable hours are low.
Do I need business insurance?
Often yes for client contracts; professional liability is commonly required.
Should I discount for long contracts?
Only in exchange for guaranteed volume or faster payment.
Assumptions & disclaimer
Results are estimates for planning. Fee schedules, tax brackets and deduction limits change; confirm current figures with the marketplace, the IRS or a qualified accountant before making decisions. Nothing here is financial, tax or legal advice.
Privacy & Your Data
BizCalcTool runs entirely in your browser. The figures you enter are never uploaded, stored or shared — there is no backend to send them to.