Contractor vs Employee Cost Calculator

Compare the true cost of a contractor against an employee on fully loaded terms, so the comparison reflects total cost rather than headline rates.

⚖️ People Ops📐 Employee loaded cost vs contractor rate × billable hours💼 Business

Employee base salary

Employer burden rate (%)

Contractor hourly rate

Contractor hours per year

Employee productive hours per year

Recruitment/onboarding amortised annually

Please enter valid values.

Formula & Reference

Variable	Symbol	Formula	Units
Contractor vs Employee Cost Calculator	—	Employee loaded cost vs contractor rate × billable hours	currency per year

Step-by-Step Examples

Example 1

Contractor Cheaper

Employee salary 85,000 at 32% burden plus 6,000 onboarding; contractor 75/hr for 1,600 hours.

Employee loaded = 85,000 × 1.32 + 6,000 = 118,200
Contractor = 75 × 1,600 = 120,000
Difference = +1,800 — nearly equivalent
Employee effective hourly = 118,200 / 1,720 = 68.72
Breakeven at 1,576 contractor hours

✓ Nearly equivalent at these hours

Example 2

Part-Time Need

Same employee cost; contractor 75/hr for only 700 hours.

Contractor = 52,500
Employee loaded = 118,200
Contractor saves 65,700 where the need is genuinely part-time

✓ Contractor clearly cheaper part-time

Example 3

Full-Time Contractor

Same employee cost; contractor 95/hr for 1,900 hours.

Contractor = 180,500
Employee loaded = 118,200
Contractor costs 62,300 more for full-time equivalent work

✓ Employee substantially cheaper full-time

Real-World Applications

Like-for-Like Comparison

Comparing a contractor rate against a salary rather than fully loaded cost systematically makes contractors look expensive.

Flexibility Value

Contractors suit variable or project-based demand where a permanent hire would sit underutilised.

Breakeven Hours

Knowing the hours at which costs equalise clarifies when converting a contractor to an employee makes sense.

Retention, institutional knowledge, IP ownership, and availability often matter more than the cost difference.

Common Mistakes to Avoid

⚠️

Comparing contractor rate to base salary

Employees carry 25 to 40% burden plus recruitment and equipment. Comparing against salary alone overstates contractor cost substantially.

⚠️

Ignoring worker classification rules

Misclassifying an employee as a contractor carries serious legal and tax exposure in most jurisdictions. Cost should never drive the classification decision.

⚠️

Overlooking knowledge retention

Contractors take institutional knowledge with them. For ongoing core work, the repeated onboarding cost can exceed any hourly saving.

Frequently Asked Questions

Is a contractor cheaper than an employee? ▾

It depends on hours. For part-time or project work, usually yes. For full-time ongoing work, employees are frequently cheaper once burden is compared properly.

What should be included in employee cost? ▾

Base salary, payroll taxes, benefits, retirement contributions, insurance, equipment, workspace, and amortised recruitment and onboarding.

What is the breakeven hours point? ▾

Employee fully loaded cost divided by the contractor hourly rate — the annual hours at which both options cost the same.

Can I classify someone as a contractor to save money? ▾

Worker classification is determined by the nature of the working relationship, not by preference. Misclassification carries significant legal and tax risk.

What non-cost factors matter? ▾

Availability and priority, retention of institutional knowledge, intellectual property ownership, confidentiality, and how central the work is to the business.

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