Is contracting better than a salary?

It can pay more and give you more control, but the income is lumpier and the benefits are on you. Compare after-tax, after-benefit numbers — that's what this calculator is for.

Do I really pay double payroll tax?

You pay both halves (15.3%) as self-employment tax, on 92.35% of your profit — and half of it is deductible. The Self-Employment Tax calculator works out the exact amount.

Should I quote hourly or by the project?

Start from the hourly rate either way. For a fixed-price project, estimate the hours generously and multiply.

Work & PayTax years 2025 & 2026

Salary to Contractor Rate Calculator

Leaving a salaried job to contract? The hourly rate that actually replaces your salary, benefits, and the payroll tax your employer used to pay — with unpaid time off and unbilled hours counted.

Ben / Reviewed Sep 27, 2026 / v2.0.0

Results

Showing the numbers you calculated

Contract rate you need: $76.79; 1.77× your $43.27 salary hourly
Break-even rate: $69.11; Matches the job, no profit
Day rate: $537.53
Revenue per year: $126,316.67; $10,526.39 a month
What the job is really worth: $107,685.00; Includes $6,885.00 of employer payroll tax
Billable hours per year: 1,645; 47.0 working weeks
Per hour worked: $67.19; Revenue ÷ billable and unbilled hours

What the rate has to cover

What the rate has to cover
	Per year
Salary	$90,000.00
The employer's half of Social Security and Medicare	$6,885.00
Health insurance the employer paid	$7,200.00
Retirement contribution	$3,600.00
Your business expenses	$6,000.00
Profit margin (10% of revenue)	$12,631.67
Revenue needed	$126,316.67

What this does

Your salary divided by 2,080 hours is not your contract rate. As a contractor you lose the benefits, pay the employer's half of payroll tax yourself, cover your own expenses, and don't get paid for time off or for the hours you spend finding work.

This adds all of that back and spreads it over the hours you'll actually bill, so you can compare a contract offer with your job honestly.

How the math works

what the job is worth = salary + bonus + employer's payroll tax + benefits
revenue needed = (what the job is worth + expenses) ÷ (1 − profit margin)

Then divide by the hours you can actually bill:

billable hours = (52 − days off ÷ 5) × billable hours per week
rate = revenue needed ÷ billable hours

The usual rule of thumb — contract rate ≈ 1.5–2× the employee hourly rate — falls right out of this math.

Check my math: a worked example

A $90,000 job with $10,800 of benefits, 25 days off, billing 35 hours a week as a contractor.

The job is really worth $107,685.00, counting the $6,885.00 of payroll tax your employer paid.
Add $6,000 of expenses and a 10% margin: $126,316.67 of revenue a year.
Billable hours: 47.0 weeks × 35 = 1,645.
Rate: $126,316.67 ÷ 1,645 = $76.79 an hour — 1.77× the $43.27 your salary works out to.

These numbers come straight from the calculator using its example inputs — if the math ever changes, this example changes with it.

Mistakes I see a lot

Dividing the salary by 2,080 and calling it a rate.
Forgetting self-employment tax. The employer used to pay half of it.
Assuming you'll bill 40 hours every week. Gaps between contracts are normal — that's what the margin is for.
Leaving out health insurance. Buying your own often costs more than the employer's share you're replacing.

Questions people ask

Is contracting better than a salary?: It can pay more and give you more control, but the income is lumpier and the benefits are on you. Compare after-tax, after-benefit numbers — that's what this calculator is for.
Do I really pay double payroll tax?: You pay both halves (15.3%) as self-employment tax, on 92.35% of your profit — and half of it is deductible. The Self-Employment Tax calculator works out the exact amount.
Should I quote hourly or by the project?: Start from the hourly rate either way. For a fixed-price project, estimate the hours generously and multiply.

Assumptions and limits

The job is worth salary + bonus + the employer's half of Social Security (6.2% up to the year's wage base) and Medicare (1.45%) + benefits. As a contractor you pay both halves as self-employment tax, so the rate has to cover the employer's half.
Time off is unpaid for a contractor: working weeks = 52 − days off ÷ 5. Only billable hours earn money; unbilled admin and sales time doesn't.
Profit margin is a share of revenue: revenue = (package + expenses) ÷ (1 − margin).
Income tax is the same either way (roughly), so it isn't added. The QBI deduction and self-employment tax deduction can change the after-tax comparison a little.
The employee's hourly rate for comparison is salary ÷ 2,080.

Ben’s notes on this

Related calculators

Hourly Billing Rate
The hourly rate you need to charge to pay yourself, cover your expenses, and make a profit — once you account for the hours you can't bill and the invoices that don't get paid in full.
Self-Employment Tax
The Social Security and Medicare tax you pay as your own boss, figured line by line like Schedule SE — including a W-2 job's effect on the wage base, the Additional Medicare Tax, and how much to set aside.
Employee True Cost
What an employee really costs you: pay, employer payroll taxes (with the real wage bases), benefits, and overhead — per year, per month, and per productive hour, plus the extra first-year hiring costs.
Salary to Hourly
Turn a salary into an hourly rate (or the other way around) — plus what you really make per hour worked once time off and overtime are counted, and what each paycheck comes to.

Spot an error?

This is a public notebook and I do make mistakes. If a number looks off, tell me — I fix things and note the change in the changelog.

Disclaimer: Educational and planning use only. Results depend on what you enter and may not match your lender, your tax return, or professional accounting treatment. Informational content + opinions only — not tax/legal advice.

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