Employee vs Contractor True Cost Calculator
A $80K salary costs far more than $80K. See the real annual employer cost of both hiring options — payroll taxes, benefits, overhead — compared side by side.
Why a $80K salary employee actually costs $100K–$115K
When employers budget for a hire, the base salary is only the starting point. Mandatory payroll taxes (FICA, FUTA, SUTA) add roughly 8–10% on top immediately. Layer in health insurance, a 401(k) match, paid time off, equipment, and recruiting costs — and the true annual cost of an $80,000 employee typically lands between $100,000 and $115,000.
Contractors appear more expensive on an hourly basis for a reason: they self-fund their own taxes, benefits, and gaps between contracts. A fair contractor rate is typically 1.4–1.7× the equivalent employee hourly rate to account for these costs.
Frequently Asked Questions
What is the typical loaded cost multiplier for a US employee?
A commonly cited rule of thumb is 1.25–1.4× base salary. For workers with comprehensive benefits in high-cost states, this can reach 1.5×. This calculator shows you the exact figure based on your actual inputs instead of a generic estimate.
What is FICA and who pays it?
FICA covers Social Security (6.2%) and Medicare (1.45%). Both employee and employer each pay half — so as an employer, you pay 7.65% of wages on top of every salary dollar. Contractors pay both halves themselves as self-employment tax, which is a key reason they charge higher hourly rates.
When does a contractor make more financial sense?
Contractors typically win for: short-term or project-based work, specialized skills needed fewer than 6 months per year, variable workload, or roles where benefits aren’t warranted. For full-time ongoing roles lasting more than a year, employees usually become more cost-effective.
What is the IRS worker misclassification risk?
Misclassifying an employee as an independent contractor can result in back payroll taxes, penalties, and interest. The IRS uses a behavioral control, financial control, and relationship type test. Consult an employment attorney before establishing long-term contractor arrangements that resemble full-time employment.